...not driven by the market price. The isocost line in this case is equal to zero. Question three a. The bidding war in the car industry caused a competitive equilibrium to occur where the company manufacturing cars raised prices of the car as the demand increased. In this case demand and supply determine the price of the product. b. The law forcing yards to put a price on the cars being sold to reduce the bidding wars as the prices were already set and the car did not go to highest bidder. This meant that the supply of the car did not influence the demand of the market. c. The internet benefited the sale of cars by allowing the car producing companies to make direct connections with the customer. The internet is used to intensify the relations with trading partners. Internet is useful in advertising of the products. d. Pareto efficient situation is when there is law that instructs the yard to put prices on the cars to avoid a bidding war. In the other situation that can be said to be pareto efficient is when the internet is used for marketing making every buyer to have the same information on the products. Question four a. Total cost, average cost and marginal cost curves b. The total fixed cost will be constant as the production increases hence the curve is horizontal on the graph. The law of diminishing returns makes the total variable cost curve to slope at an accelerating rate. The average fixed cost will be developed by dividing the fixed cost by the output. Marginal cost...
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...The National Institute on Drug Abuse defines marijuana as “the dried leaves, flowers, stems, and seeds from the hemp plant Cannabis sativa, which contains the psychoactive (mind-altering) chemical delta-9-tetrahydrocannabinol (THC), as well as other related compounds”(NIDA). Marijuana, frequently referred to as weed or cannabis, is the most common illicit drug used in the United States. It is often frowned upon mainly because it is still illegal in a majority of the country. Cannabis activists from all around the US have been fighting for legalization of the drug for years. Their main argument is that marijuana is actually a much less dangerous drug than alcohol and tobacco, which are both legal. About 50,000 people die each year from alcohol poisoning, and there are over 400,000 deaths a year attributed to tobacco smoking. On the other hand, marijuana is considered non-toxic and cannot cause death from an overdose. Because many states have yet to pass laws for legalization, only a small percentage of marijuana is sold legally through licensed dispensaries run by state governments. The rest is sold illegally on the streets, which is where the real dangers of marijuana arise. More and more states are passing laws to decriminalize marijuana and to allow its medicinal use. Recent progress in legalizing marijuana in the United States has created an opportunity to develop new marijuana market. Colorado and Washington are the only two states to legalize the previously banned drug for...
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...Profit Maximization and Competitive Supply CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit. The chapter then covers the choice of optimal output in the short run, thereby revealing the underlying structure of short-run supply curves, the choice of output in the long run and long-run competitive equilibrium. Along the way, the concepts of producer surplus and economic rent are introduced, and the chapter ends with development of the long-run industry supply curve. Section 8.1 identifies the three basic assumptions of perfect competition and section 8.2 discusses the assumption of profit maximization as the goal of the firm. Students often find some of these assumptions to be unrealistic and/or very restrictive, so it is important to acknowledge that the world is more complex, but remind them that our goal is prediction. Although the world does not work quite as simply as the model of perfect competition suggests, the model predicts quite well even when some of the assumptions hold loosely at best. To put perfect competition in perspective, it can be helpful to give a brief overview of monopoly, oligopoly, and monopolistic competition before or after presenting the assumptions of perfect competition. Restrict this discussion to identifying the number of firms in the industry, product differentiation, and barriers...
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...What is economic? Economic is a study of how people make choices among the alternatives. Since the resources that are available to world are very scarce, it is important to study economic in order to make the best choice that can maximize the total profits. Real life cases are the best examples for studying economic concepts. In this paper, there are three real life cases that illustrate economic concepts base on the Case in Point boxes from the Course Reader. The first case will define the economic concepts: choice, scarcity, and cost. The second case will describe how the stock market puts supply and demand to work. The last case will present the effects can be caused by private and external costs. Case in Point: Chapter 1.1-Defining Economics; Section 1-Scarcity, Choice, and Cost What Is Wrong With The Oil Productions? Why is oil harmful? Petroleum or oil had come to the existence about four thousand years ago. Oil is now one of the required resources for every day's activities. For instance, products like mechanical engines, cars, cooking, tar for roads, etc. needs oil to function. Even though oil has many choices of how it can be produced, it is a scarce resource. As a scarce resource, oil is very limited and cannot be reproduced or recycled. As a result, there are many opportunity costs for producing oil. For instance, one of the opportunity costs for producing oil is a healthy environment. Additionally, money is the most costly opportunity cost for the oil production...
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... Fair, and Oster Macroeconomics Supply and Demand Questions. Points to remember: 1. Always begin from and end with an equilibrium position. 2. Shift a curve or curves when you have specific reasons for doing so – and remember that a shift in one curve will NOT cause a shift in another. 3. Remember that an increase in supply shifts the supply curve to the right (increases the quantity offered at any given price) or down (decreases the cost of production). 4. Compare the beginning and ending equilibrium: -- If only one curve has shifted, the result will be unambiguous: price has risen or fallen, and the equilibrium quantity has increased or decreased. – If two curves have shifted, either price or quantity will be uncertain unless you are given more specific information. Problem 1. Draw supply and demand curves illustrating each of the following situations: a. Laptops. Quality improvements in laptops have led to an increase in demand. But we know the price of laptops has fallen over time. Data from oldcomputers.net: Macintosh Power Book, 1990: $ 2300 ($ 3500 in 2010 dollars), 2 MB RAM, 10 MB hard drive, 25 MHz processor, monochrome 640 x 400 9-inch LCD. (MB = Megabyte). Sales in 1992 = 400,000. Current MacBook 2010 (entry level): $ 1000, 2 GB RAM, 250 GB hard drive, 2.26 GHz processor, color 1280 x 800 13.3 inch LCD. (GB = Gigabyte, 1000 times more than a megabyte). Sales in 2010: about 3 million. What happened ? Answer: an increase in demand would drive the equilibrium price...
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...Introduction: The demand for any commodity is defined as inelastic when the percentage change in quantity demanded is less than the percentage change in price. Goods that are used in everyday life are considered to have inelastic demand simply because of their frequent use and an increase in price only slightly alters the change in quantity demanded. Similarly the number of substitutes available tend to define the elasticity of demand and the proportion of income spent by a person on purchasing the product. The inelastic demand curve is as follows: (Economics13 n.d.) In case of cigarettes, the price elasticity measured for different countries by WHO in their study was less than -1 or inelastic and the addictive nature of cigarettes being cited as the main reason for it. The study however does point out that if the prices are increased for a longer period, the demand might in fact be elastic as people would be impacted more by the increase in prices. The research further suggested that the demand elasticity varies amongst poor and rich countries along with the population demographics. (Perucic, 2012) In general when the prices are increased or taxes are raised on inelastic products, the beneficiary is often the producer or the government as the tax burden would be on the consumers. A tax on cigarettes would mean the consumers bearing a greater tax incidence which would in fact discourage them to spend more on tobacco products. (Tax-inelastic-demand n.d.) As seen in the...
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...MICRO ECONOMICS ASSIGNMENT Name M.AHTSHAM RAFIQ Section C Roll # BBA02123216 Submitted to Prof. Zaigham Abbas * Market supply: Total supply of every seller on which seller is willing and able to sell a good. The market supply curve is found horizontally adding all the individual supply curves. The factors affecting market supply are, 1. Sellers willingness to sell 2. Number of sellers in market 3. Prices * Market Equilibrium: When the market demand and the market supplied are equal then the market is said to be at equilibrium. That means that the equilibrium price will be equal to the demand and supply price. * Budget Line: The budget line explains the product of two that are affordable in certain amount of consumer’s income. 1. When income increases the budget line shifts to right. 2. When income decreases the budget line shifts to left. If the allotted price on the vertical axis increases the budget line makes a parallel shift downwards. If price on the vertical axis decreases then the budget line make a shift upwards. * Producer Surplus: The total revenue that producers obtain from a good and the price paid. This is the difference between the minimum supply price that sellers are willing to afford and the price they actually receive is known as producer surplus. * Price ceiling: It is a legal maximum price that is imposed on the market below the price that otherwise...
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...APPENDIX TO CHAPTER FOUR Applying Supply and Demand Analysis to Health Care One out of every seven dollars spent in the United States is spent for health care services. This is a greater percentage than in any other industrialized country.1 The topic of health care arouses deep emotions and generates intense media coverage. How can we understand many of the important health care issues? One approach is to listen to the normative statements made by politicians and other concerned citizens. Another approach is to use supply and demand theory to analyze the issue. Here again the objective is to bring textbook theory to life and use it to provide you with a deeper understanding of health service markets. THE IMPACT OF HEALTH INSURANCE There is a downward-sloping demand curve for health care services just as there is for other goods and services. Following the same law of demand that applies to cars, clothing, entertainment, and other goods and services, movements along the demand curve for health care occur because consumers respond to changes in the price of health care. As shown in Exhibit A-1, we assume that health care, including doctor visits, medicine, hospital bills, and other medical services, can be measured in units of health care. Without health insurance, consumers buy Q1 units of health care services per year at a price of P1 per unit. Assuming supply curve S represents the quantity supplied, the market is in equilibrium at point A. At this point, the total...
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...CHAPTER 21 (tracking us economy) 1. (National Income Accounting) Identify the component of aggregate expenditure to which each of the following belongs: a. A U.S. resident’s purchase of a new automobile manufactured in Japan b. A household’s purchase of one hour of legal advice c. Construction of a new house d. An increase in semiconductor inventories over last year’s level e. A city government’s acquisition of 10 new police cars. a. Net exports b. Consumption c. Investment d. Investment e. Government purchases • 2. (National Income Accounting) Define gross domestic product. Determine whether each of the following would be included in the 2007 U.S. gross domestic product: a. Profits earned by Ford Motor Company in 2007 on automobile production in Ireland b. Automobile parts manufactured in the United States in 2007, but not used until 2008 c. Social Security benefits paid by the U.S. government in 2007 d. Ground beef purchased and used by McDonald’s in 2007 e. Ground beef purchased and consumed by a private U.S. household in 2007 f. Goods and services purchased in the United States in 2007 by a Canadian tourist • Gross domestic product is the market value of all final goods and services produced in a country during one year by resources located in that country. a. No, this production occurred outside U.S. borders b. Yes, this current production is treated as inventory investment c. No...
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...MICRO-ECONOMICS BY DARLINGTON MZIE 2014-15 Mosi-oh-tunya high DARLINGTON PHIRIM M ECONOMICS DEF: a dynamic subject that studies e changes in e economy -it is a scientific inquiry where economic agents seek to allocate scarce resources efficiently. This goes about in answering fundamental economic questions, how, what and 4 whom. (P. Samuelson) -it’s a human science which studies e relationship between e use of scarce resources and their uses that strive for them. BASIC ECONOMIC PROBLEM SCARCITY –human needs and wants tend to be infinity. This leads to what can be refered as the economic problem. ...
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...1. Determining changes in equilibrium price and quantity for a perfectly competitive industry given changes in demand and/or supply (Ch. 2, p. 60-65; Class Notes) A. Graphical analysis given demand and supply curves a) While there is increased awareness of Vitamin C available from orange juice, a hard, freezing winter occurs in most of the orange producing areas. Demand increases while supply decreases. b) While the technology used for tobacco production is improving, there is increased awareness of the health effects of smoking. Supply increases while demand decreases. c) While there is increased awareness of Vitamin C available from orange juice, highly favorable weather conditions occur in orange producing areas for most the crop season. Both demand and supply increase. d) While there is increased awareness of the health effects of smoking, severe drought occurs in tobacco producing areas for most of the crop season. Both demand and supply decrease. 2. Determining the cross-price elasticity of demand between two goods (Ch. 3; p. 85-88, Class Notes) A. Arc cross-price elasticity, given discrete changes in price and quantity demanded Exy = [(Qndx - Qodx)/{(Qndx + Qodx)/2}] / [(Pny - Poy)/{( Pny + Poy)/2}] = [(Qndx - Qodx)/(Qndx + Qodx)] / [(Pny - Poy)/( Pny + Poy)] where, Qndx and Qodx are new and original quantities of good X demanded, and Pny and Poy are...
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...Answers to selected “Problems and Applications” Questions in Mankiw Chapter 1: 4) If you spend $100 now instead of saving it for a year and earning 5 percent interest, you are giving up the opportunity to spend $105 a year from now. The idea that money has a time value is the basis for the field of finance, the subfield of economics that has to do with prices of financial instruments like stocks and bonds. 5) The fact that you've already sunk $5 million isn't relevant to your decision anymore, since that money is gone. What matters now is the chance to earn profits at the margin. If you spend another $1 million and can generate sales of $3 million, you'll earn $2 million in marginal profit, so you should do so. You are right to think that the project has lost a total of $3 million ($6 million in costs and only $3 million in revenue) and you shouldn't have started it. That's true, but if you don't spend the additional $1 million, you won't have any sales and your losses will be $5 million. not the total profit, but the profit you can earn at the margin. So what matters is In fact, you'd pay up to $3 million to complete development; any more than that, and you won't be increasing profit at the margin. Chapter 2: 4) a. Figure 1 shows a production possibilities frontier between guns and butter. It is bowed out because when most of the economy’s resources are being used to produce butter, the frontier is steep and when most...
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...decrease in the quantity demanded and a decrease in demand for Mickey Mantle baseball cards. Give a possible reason for change in each graph. Decrease in the quantity demand of Mickey Mantle Baseball cards. The reason is that the price increase. Decrease in demand for Mickey Mantle Baseball cards. The reason may be taste and preferences. 4. Draw graphs to illustrate the difference between a decrease in quantity supplied and a decrease in supply for condominiums. Give a possible reason for change in each graph. Decrease in quantity supplied fir condominiums. If the price decreases, the suppliers will supply less. If the tax and subsides increase, the curve will shift and the suppliers will supply less. 6. Predict the direction of change for either supply or demand in the followings situation. a) Several new companies enter the home computer industry. Supply goes up. b) Consumers suddenly decide SUVs are unfashionable. Demand goes down. c) The U.S.Surgeon General issues a report stating that tomatoes prevent colds. Demand goes up. d) Frost threatens to damage the coffee crop, and consumers expect the price to rise sharply in the future. Demand goes up before the price rises. e) The price of tea falls. What is the effect on the coffee market? Demand goes up. f) The price of sugar rises. What is the effect on the coffee market? Demand goes down. g) Tobacco lobbyists convince Congress to remove the tax paid by...
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...|A Report on | |Elasticity and Related Problems | |A Report on | |Elasticity and Related Problems | Course Title: Microeconomics Course Code: F – 106 Submitted To: Lubna Rahman Lecturer Department of Finance University of Dhaka Submitted By: |Serial No. | | | |Name | | | |ID No. | | | | | | | |01. | | | |Md. Tanvir Ahmed Chy ...
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...use to produce goods and services Factors: Labour: Human resources Capital: financial resources [money to start a business] Entrepreneurs: people who accept the opportunities and risks in creating business Natural Resources: physical resources Information Resources: market forecasts, economic data, specialized knowledge of employees [industry related publication] Types of economic systems: Command economy: government controls all or most factors of production and makes all or most production decision Two basics form: Communism: government owns and operates all sources of production [government was not suppose to stay in control, only temporary, but it did, end up being open business] Socialism: government owns only selected major industries [worker can choose their employer, public welfare, high taxes] Market economy: individuals control production and allocations decisions through supply and demand Market: mechanism for exchange between the buyers and sellers of particular good Two market relationships: Input market: firms buy resources from suppliers Output market: firms supply goods and services in response to demand Capitalism: political basis of market processes [market decides what, when and who we give it to, buyer and seller have freedom of choice, ownership is open to all] Mixed market economy: both command and market Privatization:...
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