Basic economics Essay
An example of a supply & demand graph (a)People decide to have more children. This indicates there is an increase in the number of buyers, therefore increase in its emend. (b)A strike by steelworkers raises steel price Steel prices increases due to workers’ strike, the cost of input increase, so the supply decreases (c)Engineers develop new automated machinery for the production of minivans Advances in technology allow more output production with the same amount of resources resulting in increase of supply. D)The price of sport utility vehicles rises The rise in price of sport utility will increase the demand for minivans because the sport utility van serves as a substitute in the industry and therefore will positively affect the demand curve for minivans. E) A stock-market crash lower people’s wealth The reduction in peoples’ wealth caused by a stock-market crash reduces their income, leading to a reduction in the demand for minivans. Question 3 If demand is inelastic how will an increase in price change the total revenue?
Answer: What do we know about Price Elasticity of Demand and how does it affect the price change to a production? Basically, the price elasticity to demand is a platform to measure the sensitivity or the responsiveness of buyers to the change of price. There are two categories in such that whether it is elastic or inelastic. Elastic is where the responsiveness is positive or more than one and the percentage in quantity demanded is greater than the percentage in price change.
On the other hand, inelastic is where the responsiveness is negative. The percentage change in quantity demand is lesser than the percentage in price change. There is a general formula to determine the elasticity of demand. Below are the formulae and the examples of elasticity demand graphs. Today, we are going to relate how the price change will affect the revenue. Total revenue has its own general formula to calculate and they are all inter-dependable. A change in either each of the variables will change the value of the whole equation.
For example, Therefore if the elasticity demand is inelastic, the price change will immediately affect the revenue. If price(P) increase, the total revenue automatically will increase as well. The relationship between the price and total revenue can actually be explained using the price elasticity demand graph. The relationship between price and total revenue in the inelastic graph shows a positive relationship while it is negative in an elastic graph. How do we prove these two relationships right? In the graphs below, we can clearly see the relationship.
If the productivity of a variable input declines, then more is needed to produce a given quantity of output, which means the cost of production increases, and a higher supply price is needed. For example, the diagram above clearly shows that as the number of inputs increase, the number of returns will increase rapidly in the beginning and then slows down as the input increases. The amount of input will be constantly increasing at a stable rate with the returns increasing also but at a very slow rate. This can be shown by the gradient of the curve at a certain point.
The return will increase until a certain point until it reaches its peak. That point is where we call it the point of diminishing return where if more input were to be added, the return will decrease instead. The shape of the curve will gradually look like a bell graph shape. Furthermore, the total-cost curve and the variable-cost curve have a certain curve pattern due to the law of diminishing returns where it is not a linear line graph. The total cost curve in the graph is the addition of two variables such as the variable and axed cost.
As the total cost increases, the marginal cost or the distance between the total-cost curve and the variable-cost curve decrease to a certain point and then start increasing after that. This indicates that the law of diminishing return does apply in this scenario. In fact, it applies to almost all of the cases related to this. Therefore, the patterns of these curves are influential or rather influenced by the law of diminishing returns. Question 5 I) The economic pronto The industry is the price maker while the firm is the price taker. So, the equilibrium point of the two graphs is similar.
The equilibrium point where they intersect, price is 60. Therefore, in the representative firm graph P=AR=MR. is 60 also. In this case above, the economic profit is zero because the TACT and MS intersect the line AR at the horizontal line, MR. is 60. The intersection shows a normal profit therefore it is a zero economic profit and also when MR.=MS, profit is maximized. I’) New equilibrium shift to $100 in the short-run Revenue: = 4000 cost: xx = 2800 Economic profit: Revenue – Cost = 4000 – 2800 =1200 iii) In the short-run, the firm should enter the market due to the super-normal profits n the short-run under perfect competition.
The quantity increases and price rises to be higher than the average total cost. So, firms start to earn profit. Therefore, entering the market now should be a favorable option for the firm. Iv) In the long-run, the firm should stay in the market. In the short-run, firms will enter the market when economic profits continue to exist. As new firms enter, the supply curve shifts to the right, price falls, and profits fall. Firms continue to enter the industry until economic profits fall to zero. If firms are experiencing economic losses, they will leave. The supply curve shifts to the left, increasing price and reducing losses.
Firms continue to leave until the remaining firms are no longer suffering losses until economic profits are zero. Question 6 a) In a market, there are several types of markets and an example of them is a monopoly. In Malaysia, an example of a government-created monopoly is our Teenage National Bertha (TNT). TNT is the country’s sole producer of electricity. It monopolize the market here in Malaysia and it also belongs to the government. There is a policy that only TNT is allowed to produce electricity in Malaysia. However today’s issue concerns about is it a bad public policy to create a monopoly.
Basically a monopoly firm is a price maker. A monopoly is the only sole seller of the product in the market with no substitutes too. It faces a downward-sloping demand curve because it is the only sole producer. A monopoly can adjust its price for example they can reduce their price to increase their sales. Back to the main purpose of the case above, the huge dilemma about whether monopoly is something beneficial to the public or the opposite. Monopoly may be good or it may be bad, in he sense that human behavior may be good or bad according to whatever ethical standard we use to measure moral action.
According to dictionaries, the term monopoly means exclusive control of a commodity or service in a given market. There are two ways to attain a promising position in the market, that is to say, there are two ways to achieve monopoly. One way is not only harmless but beneficial while the other is bad. The beneficial way is to become superior to everyone else in providing some good or service. The other way is to forcefully keep others from competing effectively and also from challenging for the pole position. No matter what method we ended up with, only a certain social group can be served us in the end.
The rest will be unhappy with the monopoly system, regardless of the services provided. As for example, TNT, are their monopolistic reigns acceptable or not? As a monopoly controlled and created by the government, we as citizens have to accept their monopolistic actions. We often question ourselves, why is it that we only have a provider when it comes down to electricity, do we even benefit or are we being played under the hands of the government as pawns to bring them closer to their win selfish goals. We are always questioning ourselves but there are those who simply accept them willingly.
Humans are always seeking for absolute satisfaction but keep in mind there is no such thing unless in a dream. So far, TNT has been not too bad in controlling their production as well as the market all by themselves. They are the price maker in the market. Socially, there are those who wished to venture in the same market as them but unfortunately it is impossible due to the government- created monopoly in place. There is not a slim chance for anyone to even try. Therefore, is this policy acceptable to the people, firms and all those who are involved?
Let us think like a businessman. As a businessman who runs a firm, their aim is to gain profit. Besides, almost every firm would love to monopolize the market they are currently in where there are no competitions and there will be consumers regardless of how. Benefits as a monopoly are indeed very promising. As a competitor or a firm who has no chance in doing so, there will sure be an unsatisfactory call. Nobody loves to be exiled from a certain field. Therefore, personally there are those who will tan up against monopoly.