Course Code: Essay Example
Running Header: Economics
The supply curve usually slopes upwards due to increasing marginal costs. An increase of quantity of any goods produced results to an increase of the marginal cost of producing it in the short run. The supply curve usually slopes upwards in order to satisfy the law of supply. According to law of supply, the higher the cost the larger the quantities supplied. This definitely makes the supply curve slope upwards. Supply can be defined as the amount supplied of products that sellers plan to sell at any given time.
Quantities of the goods changes are usually caused by price changes within the market. On the other hand, supply changes due to varying market and production aspects that include the price of goods, factors of production cost, related goods prices, the number of suppliers, expected future prices of the products, and technology. Other factors affecting include climate and natural disasters.
Price is usually seen as the willingness to pay for a specific unit of good. This is in terms of money price that usually measures the good’s demand. Value on the other hand is the how much benefit that an individual gets from extra consumption of goods. Value usually depends on an individual taste and preference. When the demand is greater than the equilibrium price and less than equilibrium quantity traded, the customers get the value of goods higher than the value. In case the demand of the goods is less than equilibrium price, then the consumers get a value less than the price they pay.
In case of a banana: if the market price inflation happens. The price of banana may much higher than the consumers’ value. In this case, price is also a poor indication of value.
Beer is almost an inelastic product. If the beer production decreases because of the climate, then supply will decrease and increase the price. However, the demand of cigarettes will not be affected much. Some people are willing to pay much higher price than the present price. Therefore, money is a poor indication of value now.
The responsiveness to various aspects affecting demand is usually referred to as elasticity. Income elasticity of demand is the receptiveness of demanded quantities to changes in consumer after-tax income. It is the change of demanded amounts of a certain product to income changes. Income elasticity of demand between 0 and 1 represents necessities while income elasticity of demand greater than 1 represents luxurious goods. Inferior goods usually have an income elasticity of demand of less than zero.
Price elasticity of demand measures the responsiveness of demanded quantities for a certain product A to changes in the price of a related product B. It can also be defined as the percentage change in quantity of good A to percentage change in the good B price. In case the income elasticity of demand is zero, the income increase is not related to demand changes hence said to e sticky. In Australia, agricultural products do not have high demands due to high income that people earn. This results to people opting for more luxurious goods instead.
They are two methods of subsidy that include subsidy on consumption and subsidy on consumption. Vaccination is a medicine hence the demand is inelastic. The subsidy on consumption is the most effective. Because of the cut of tax, the supply curve will move downward. As a result, the quantity demanded increases (Q2) and the price decreases (Pc2). Vaccination has an inelastic demand and the quantity demanded will not be affected so much when the shift of supply curve. Pc2 is the price consumers are willing to pay and Pp2 is the price producers receive after shifting the supply curve. The subsidy cost of government is the large rectangle with dark shading. In addition, it has two parts subsidy that consumers received and suppliers received. According to the diagram, subsidy consumers received (bottom rectangle) is much more than suppliers (top rectangle), so consumers benefit more from the tax cut.
The law of diminishing marginal returns states that as one type of inputs are added while all other types of inputs remain constant, at one point the production will increase at a rate that will be diminishing. That can be illustrated when the number of employees increases, the marginal product of an extra workforce decreases less than the marginal product of an earlier employee. There may be input levels whereby inputs increase results to production moving up at a rate that is increasing. On the other hand, according to law of diminishing returns, the production will move up at a decreasing rate.
Diseconomies of scale takes place when per unit cost move up with an increase in output. This is mainly due to bureaucratic inefficiencies. It becomes more difficult to motivate an increasing number of employees. In case of diseconomies of scale, the curve of long-run average total cost (LRAC) will rise.
Curve of Long-run average total cost
Monopoly is the market situation that exists when there is only one firm in the business. In a monopoly market, they are barriers that prevent other firms from entering into the market; such include control of key factors, natural monopolies or economies of scale, control of outlets or ownership, and legal protection including copyrights/patents. There is higher prices and lower output in the short run and long run.
Perfect competition on the other hand has firms that are profit maximisers or loss minimisers. This is a market situation with many sellers and buyers. This market is characterized by identical products, zero economic profit in the long run, no barriers to market entry and firms being price takers or horizontal DC. In this market, price is equal to marginal cost with prices being low due to competition.
Public goods are goods and/or services that society wants, but the private sector will not provide them. Everyone can consume them at the same time and no one can be excluded.
They are two reasons why private firms do not provide these goods includes two main reasons:
Non-excludable: cannot stop or is extremely difficult to stop anyone from benefiting from the good. If you cannot stop people from benefiting from the good they will not pay. A price cannot be charged. This leads to the problem of the free-rider (a person who consumes the good without paying for it).
Non-depletable: an extra person consuming the good is not going to “use it up” any more than if they were not consuming the good. The marginal cost of providing for one extra person is zero.
As a result, no private firms are willing to produce these products.
Government has the duty to triumph over the market failure. There are two ways to solve the problem: Direct government provision, or subsidise private sector provision.
Initially, there is a shortage in the market and the wage for carpenters is high. Therefore, many people are attracted to enter this market by the high wage. So later, the supply curve shift to the right and the new equilibrium point comes out. This resulted to an increased competition among the carpenters resulting to a decrease in the wages. On the other hand, consumers will be able to get the products at a reduced prices as well as a high quality. This is due to increased competition among the suppliers of carpentry services.
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