economics complete

8/18/2019 Economics Complete

http://slidepdf.com/reader/full/economics-complete 1/15

Running head: ECONOMICS DISCUSSION QUESTIONS 1

Economics Discussion Questions

Student’s Name

Institutional Ailiation



ECONOMICS DISCUSSION QUESTIONS !

Question 1

Nature and Scope of Economics

In the "o#ld $eo$le ace immeasu#a%le "ants #om the c#adle to the g#a&e' In case one "ants

satisaction( othe# "ants a$$ea# in chain )*o"e#s( 1+,+-' To satis. theses "ants indi&iduals a#e

in&ol&ed in die#ent da. to da. o$e#ations in the societ.' The good ne"s ho"e&e# is that "a.s to

satis. these "ants a#e unlimited' As a #esult( $eo$le a#e constantl. st#i&ing to satis. these unlimited

"ants using limited "a.s' As a disci$line( the science o Economics has %een de&elo$ed to

in&estigate and discuss die#ent "a.s th#ough "hich $eo$le a#e in&ol&ed in #esou#ces management

and ho" the. endea&o# to satis. unlimited "ants "ith the use o limited means )*o"e#s( 1+,+-'

The "o#d /Economic’ is de#i&ati&e o a 0#ee "o#d /Oionomia’ meaning household

management' Economics "as i#st studied in ancient 0#eece "he#e it "as te#med as a science o

household management )*o"e#s( 1+,+-' It is #om the enhancement o human lie that "e get the

deinition o economics' 2ate# on( Adam Smith( a man te#med as the athe# o Economics in the 1, th

centu#. deined Economics as the /science o 3ealth'’ In this he meant that Economics is a science

that inds out the natu#e and causes o "ealth o"ned %. nations( im$l.ing ho" "ealth is de&elo$ed

and utili4ed' 2ate# it "as deined as stud. o human %eings in the o#dina#. %usiness o lie

)Sa$$inen( !556-' 7ollo"ing these changes and de&elo$ments( a #ealistic deinition has eme#ged

%ased on sca#cit. o #esou#ces( unlimited "ants and $eo$le engagements as the. st#i&e to satis.

unlimited "ants "ith limited #esou#ces )*o"e#s( 1+,+-' In this conside#ation( Economics is a social

science that studies ho" $eo$le use the limited #esou#ces to satis. unlimited "ants o# a stud. on

ho" communities use limited #esou#ces to gene#ate useul commodities and dist#i%ute them to

die#ent $eo$le and in die#ent geog#a$hical locations'



ECONOMICS DISCUSSION QUESTIONS 6

Scope of Economics

The ma8o# aim o economics is to handle the anal.sis o economic $#o%lems acing a societ.

and t#. to come u$ "ith st#ategies to heighten satisaction' 7#om this $oint( economics is seen as a

social science' Due to inc#eased communit. t#anso#mation and ci&ili4ation the sco$e o economics

has "idened' 7i#st is as a social science that handles economic o$e#ations o the $eo$le' To local

$eo$le( economics has a lot to do "ith thei# da. to da. ea#nings and e9$enditu#e' Such an issue as

nu#sing o child#en "ill not %e t#eated as a su%8ect matte# in economics )*o"e#s( 1+,+-' Seconds is

that #esou#ces a#e #eui#ed to satis. indi&idual’s "ants' This means that a&aila%ilit. and use o

#esou#ces a#e ma8o# conce#ns in the ield o economics'

Ne9t is that "ants a#e unlimited cont#a#. to #esou#ces needed to satis. these "ants "hich

a#e usuall. sca#ce' In this #ega#d( the su%8ect matte# o economics is to ind "a.s th#ough "hich

unlimited "ants can %e satisied "ith the use o minimal #esou#ces' 7ou#th is that "ants a#e

associated "ith $#oduction( e9change( dist#i%ution and consum$tion )*o"e#s( 1+,+-' Additionall.(

cu##enc.( %aning s.stem( $u%lic inance( and t#ade among othe#s a#e #ecogni4ed in economics'

Economic $lanning is also an im$o#tant matte# in economics "hen taing into conside#ation mattes

#elated to economic de&elo$ment o a count#.' 2ast %ut not least is that economics a#gue on the

economic diiculties and economic acti&ities and inds out good techniues to sol&e such $#o%lems'

Economics also a#gues on &alue 8udgment o human actions and %eha&io# )*o"e#s( 1+,+-'

Importance of the study of Economics

Cu##entl.( the stud. o economics is o g#eat im$o#tance not onl. %ecause it oe#s no"ledge

%ut also %ecause it assists in sol&ing o da. to da. lie $#o%lems' 7o# instance( $eo$le stud.ing



ECONOMICS DISCUSSION QUESTIONS ;

economics "ill %e a%le to handle the challenge o using limited #esou#ces to satis. nagging "ants

th#ough the use o a $#ee#ence list' Ne9t is that( th#ough economics one is a%le to lea#n $#o$e# use o

#esou#ce and the#e%. a&oid misuse o# out$ut ma9imi4ation' Thi#dl.( economics hel$ in state

management )*o"e#s( 1+,+-' 3e cannot do "ithout the use economics in economic $lanning and

de&elo$ment acti&ities o the state' In this #ega#d( the go&e#nment( $oliticians and othe# oicials

need to ha&e $#o$e# no"ledge in economics on such issues as cu##enc. s.stem( %aning s.stem( ta9

s.stem( %udgeting( among othe#s so as to %e in a $osition to manage state aai#s' Economics can

also %e used %. social "o#e#s in the diagnosis o thei# #elated $#o%lems and ind solutions to

$#o%lems #elated to $o&e#t.( unem$lo.ment( illite#ac.( o&e#$o$ulation( housing and medical acilities

among othe#s )Sa$$inen( !556-'2ast %ut not least is the use %. la%o# leade#s "ho use it du#ing the

%a#gaining $#ocess on issues #elated to t#ade unions( #aise o "age( "o#ing conditions among

othe#s' <ased on the discussed matte#s it is e&ident that economics is &ital and it is needed in

die#ent ields( and mo#e so on the o#mulation and im$lementation o economic $lans o a count#.'

Economic Analysis

Economic anal.sis is se$a#ated into t"o ma8o# %#anches namel.= Mic#oeconomics and

Mac#oeconomics'

Mic#oeconomic is de#i&ed #om t"o "o#ds Mic#o and economic' Mic#o is a 0#ee "o#d

meaning small' Mic#oeconomics calls o# a lea#ning o the decision o indi&iduals and %usiness and

the #elationshi$ o those decisions in the ma#ets' The ma8o# aim o mic#oeconomics is to cla#i. the

$#ices and uantities o s$eciic goods and se#&ices' Additionall.( this %#anch studies the im$act o

go&e#nment #egulation and ta9es on the $#ices and uantities o s$eciic goods and se#&ices' An

e9am$le a#e the acto#s that esta%lish $#ices and uantities o cement #om a gi&en cement acto#.'



ECONOMICS DISCUSSION QUESTIONS >

Mac#oeconomic on the othe# hand is de#i&ed #om t"o "o#ds mac#o and economic in "hich

mac#o is a 0#ee "o#d meaning %ig )Sa$$inen( !556-' Mac#oeconomics the#eo#e is the stud. o the

national Econom. and %e.ond %ounda#ies as "ell as ho" an inte#national economic s.stem "o#s'

The ma8o# aim o mac#oeconomics is to e9amine gene#al $#ice le&els( national income( em$lo.ment

#ate( $o$ulation and $#oduction' Additionall.( it also deals "ith the im$act o go&e#nment actions?

ta9es( s$ending and deicit?on total incomes and $#ice le&el' 7o# e9am$le( the dete#minant o a&e#age

cost o li&ing o# dete#mining the total &alue o $#oduction in a count#. )Sa$$inen( !556-'

Question 2: Supply and Demand

Su$$l. and demand a#e ma8o# conce$ts o economics and a %ac%one to ma#et economies'

Demand #ee#s to ho" much( i'e' the uantit. o a $#oduct o# a se#&ice $#ee##ed %.

custome#s' On the othe# hand( uantit. demanded #ee#s to the amount o $#oduct that %u.e#s a#e

"illing and a%le to $u#chase at a gi&en $#ice' Demand?#elationshi$ is the #elationshi$ %et"een $#ice

and uantit.' On the othe# hand su$$l. is "hat ma#et can $#esent' The uantit. su$$lied #ee#s to

the amount o goods that a $#oduce# is "illing to su$$l. at a gi&en $#ice' The #elationshi$ %et"een

goods su$$l. and $#ice is #ee##ed to as su$$l.?#elationshi$' The o#ces that dete#mine the

#elationshi$ %et"een demand and su$$l. a#e #es$onsi%le o# #esou#ce allocation'

The demand o a gi&en $#oduct is antici$ated using acto#s such as= tastes and $#ee#ences(

le&el o income( uantit. o goods %eing oe#ed and a&aila%ilit. o su%stitutes' 7o# the case o

demand one conside#s acto#s such as= $#oduction ca$acit.( $#oduction costs and le&el o com$etition

)<#ennan @ <a#nes?Mu#$h.( !516-'

The Law of Demand



ECONOMICS DISCUSSION QUESTIONS

The la" o Demand states that( all acto#s #emaining constant( the highe# the $#ice o goods

and se#&ices the lo"e# the demand' The amount o goods %ought %. a %u.e# at high $#ice is less due

to the high o$$o#tunit. cost o %u.ing o# highl.?$#iced goods'

A%o&e is a demand cu#&e' *oint A( $oint < and $oint C lie on the cu#&e' Each $oint sho"s a

#elation %et"een demanded Quantities )Q- and $#ice )*-' Quantit. demanded at $oint A "ill %e Q1

and the $#ice "ill %e *1' 7o# $oints < and C "ill %e Q!*! and Q6*6 #es$ecti&el.' 7#om the g#a$h it

is e&ident that the#e is a negati&e #elationshi$ %et"een $#ice and uantit. demanded' The highe# the

$#ice the lo"e# the demanded uantit.( )A- "hile lo"e# $#ice leads to high uantit. demanded( )C-'

The Law of Supply

This la" states that the highe# the $#ice the highe# the uantit. su$$lied' The su$$l.

#elationshi$ sho"s an u$"a#d slo$e' The su$$l. is high at high $#ices due to the act that selling high

uantit. #aises the le&el o #e&enue )<#ennan @ <a#nes?Mu#$h.( !516-'



ECONOMICS DISCUSSION QUESTIONS B

A( < and C a#e $oints on su$$l. cu#&e de$icting the #elationshi$ %et"een uantit. su$$lied

)Q- and $#ice )*-' At $oint C uantit. su$$lied "ill %e Q6 and $#ice "ill %e *6( same o# othe# $oints

)ende#son( 1,>+-'

Supply and Demand Relationship

Su$$l. and Demand has a lot o im$act on the $#ice' Taing o# e9am$le a s$ecial CD edition

is sold at !5' Due to the act that the anal.sis #om the ma#et indicate that consume#s a#e not in

need o high cost CDs mo#e than !5( onl. a%out ten CDs a#e #eleased leading to high o$$o#tunit.

cost o# su$$lie#s to $#oduce mo#e )ende#son( 1,>+-' In case ten CDs a#e demanded %. !5

indi&iduals( the $#ice "ill inc#ease' In this case( the su$$l.?demand #elationshi$ is that as demand

inc#eases so a#e the $#ices and the highe# the $#ice the highe# the uantit. su$$lied'

On the othe# hand i 65 CDs a#e manuactu#ed "hile demand #emains at !5( the $#ices "ill

not #ise due to the act that no" the demand is lo"e# than the demanded uantit. )ende#son( 1,>+-'

In this #ega#d( the !5 consume#s "ill %e satisied and the #emaining ten CDs "ill %e dis$osed at

lo"e# $#ices as the su$$lie# t#ies to do a"a. "ith it maing it a&aila%le to $eo$le "ho had &ie"ed

o$$o#tunit. cost o %u.ing the CD at !5 "as &e#. high'



ECONOMICS DISCUSSION QUESTIONS +

Equilibrium

The su$$l. and demand a#e said to %e in euili%#ium "hen the su$$l. unction and demand

unction inte#sect' At this $oint goods allocation is eicient due to the act that goods demanded a#e

e9actl. su$$lied maing all $eo$le "ithin the econom. to %e satisied' At the gi&en $#ice( the

su$$lie#s a#e selling all goods $#oduced and consume#s get all goods that the. demand )ende#son(

1,>+-'

7#om the g#a$h it is e&ident that the euili%#ium occu#s at $oint o inte#section o the demand and

su$$l. cu#&e "he#e%. the $#ice "ill %e * "hile uantit. demanded "ill %e Q'

Question 3: Market Structures

Comparison of Maret Structures

*e#ect

Com$etition

Mono$ol. Mono$olistic

Com$etition

Oligo$ol.

No' o 7i#ms igh in num%e# Single i#m igh in num%e# A e"

7#eedom o Ent#. Eas. *#otected( &e#.

ha#d

Eas. a#d



ECONOMICS DISCUSSION QUESTIONS ,

Natu#e o *#oduct No $#oduct

die#entiation

Uniue( no close

su%stitutes

The#e is $#oduct

Die#entiation

A#e same o#

die#entiated

Im$lication o

Demand cu#&e

o#i4ontal(

o#gani4ation is a

$#ice tae#

Do"n"a#d

slo$ing( too

inelastic( $#ice set

in elastic #egion

Do"n"a#d

slo$ing( too

elastic in the long

#un'

Do"n"a#d

slo$ing( elastic(

inelastic and

ined

A&e#age Si4e o

the 7i#m

igh num%e# o

i#ms

One la#ge i#m igh num%e#

small and

medium i#ms

A e" i#m

*ossi%le

Consume#

Demand

Too elastic Inelastic Elastic Elastic

*#oit Maing

*ossi%ilit.

Onl. no#mal

$#oits

*#oit

ma9imi4ation(

Economic $#oits

No#mal $#oits No#mal $#oit and

lielihood o

Economic $#oits

0o&e#nment

Inte#&ention

None ea&il.

Regulated

Minimum Un#egulated

*#icing *o"e# 2o"( $#ice tae# Too high( sette# 2o"( sette#Ftae# Medium( sette#

!erfect Competition

Demand in this ma#et is constant( since a %u.e# o# a selle# cannot aect the ma#et' The

selle#s and %u.e# a#e $#ice tae#s and i#ms mae no#mal $#oits )Macho&ec( 1,,>-' *#ice is




eui&alent to ma#ginal cost( as sho"n %elo"( hence ma9imum eicienc. achie&ed' *#ice is set %elo"

the a&e#age cost cu#&e the#eo#e the o#gani4ation is $#oducti&el. eicient'

Monopoly

Neithe# close su%stitute no# com$etition e9ists maing the i#m the $#ice sette# "hile %u.e#s

a#e $#ice tae#s' Due to act that $#ice is high than a&e#age cost and set in the elastic #egion( i#ms

gets su$e#no#mal $#oits' *#ice is set a%o&e the ma#ginal cost( hence eicienc. is not achie&ed'

Monopolistic Competition

<oth long and sho#t #un o this ma#et a#e sho"n %elo"' In the sho#t #un( mono$olistic

com$etiti&e o#gani4ation ea#n su$e#no#mal $#oits since the $#ice is highe# than a&e#age cost




ho"e&e# in the long #un the o#gani4ation ea#ns no#mal $#oits since the $#ice is eui&alent to the

a&e#age cost' In %oth case the $#oducti&it. eicienc. is not achie&ed since the $#ice is not %elo"

a&e#age cost cu#&e )Macho&ec( 1,,>-'

Sho#t Run 0#a$h 2ong Run 0#a$h

"li#opoly

7o#mall. and ino#mall. ag#eed $#ice e9ists and ma#et is managed %. &e#. e" i#ms and

"ho cont#ol $#ices )7ellne#( 1,;,-' Gined $oint is c#eated "hen demand cu#&e D1 and D! inte#sect

as sho"n %elo" "he#e D1 is elastic "hile D! is inelastic' <et"een $oints a and % o the ma#ginal

cost( $#ice does not change' 7#om the g#a$h it is e&ident that eicienc. is not achie&ed due to highe#

$#ice than ma#ginal cost )7ellne#( 1,;,-'

Question 4: Negative Externalities

E9te#nalities a#e "o#ds deined as a thi#d $a#t. eects as a #esult o $#oduction and

consum$tion o goods and se#&ices "ith no com$ensation' It "o#th noting that this occu#s outside



ECONOMICS DISCUSSION QUESTIONS 1!

the ma#et in that( it does aect indi&iduals not di#ectl. in&ol&ed in $#oduction and consum$tion o

goods o# se#&ices' Economic acti&it. de&elo$s s$ill o&e# %eneits and s$ill o&e# costs' Dealing "ith

negati&e e9te#nalities one ocuses on the s$ill?o&e# costs )acett( 1,,+-' Negati&e e9te#nalities tae

$lace "hen $#oduction o# consum$tion leads to the e9te#nal costs on the thi#d $a#ties "hich a#e not

usuall. com$ensated' As a #esult o this the go&e#nment usuall. inte#&enes in the economic s$he#e'

The e9te#nalities %#ing a%out disc#e$anc. %et"een $#i&ate and social costs o $#oduction and the

$#i&ate and social %eneits o consum$tion' Social cost is gi&en %. *#i&ate Costs and e9te#nal cost

com%ined "hile social %eneit is $#i&ate %eneit and e9te#nal %eneit com%ined' The#eo#e( o#

negati&e $#oduction e9te#nalities to e9ist( social costs e9ceeds $#i&ate cost "hich in tu#ns

cha#acte#i4ed %. o&e#?$#oduction )<a#tolini @ <onatti( 1,,,-' To co##ect the negati&e e9te#nalities

the go&e#nment has come "ith &a#ious inte#&entions' 7o# instance the go&e#nment has ensu#ed that

the#e is $#i&ate $#o$e#t. #ight' Othe# o$tion dealing "ith this is th#ough negotiation %et"een the

in&ol&ed' This is %est techniue since it lead to lasting and mutual solution'

To illust#ate this situation in #eal lie( tae into conside#ation "ate# $ollution' In this conside#

a "ate# t#eatment $lant and a $ig a#me#' The lielihood that the a#me# "ill #elease the $igs "astes

into the #i&e# "hich in tu#n "ill inc#ease the cost o "ate# t#eatment %. the $lant' A< de$icts the

ma#ginal %eneit to the $ig a#me# "hile the OE ma#ginal damaged incu##ed %. the $lant' Not taing

into conside#ation the e9te#nal eect o the $lant( the $ig a#me# "ill gene#ate O< $igs ma9imi4ing

his $#oits eui&alent to OA< )acett( 1,,+-' On the othe# hand O<E de$icts the damages incu##ed

%. t#eatment $lant' 7inding out the die#ence %et"een the t"o #e$#esent net gain to social "ela#e

#om the $ig a#me#’s acti&it.'




To ma9imi4e social "ela#e( the $ig a#me# should #educe his out$ut o $igs to OD since at

this $oint the ma#ginal %eneit o an additional $ig is eui&alent to ma#ginal cost o additional

$ollution inc#easing the social "ela#e de$icted %. OAC )Siemens @ Goseld( !55,-

The go&e#nment deals "ith these negati&e e9te#nalities %. ta9ing the $ollute# on the %ases o

the deg#ee o $ollution' 7o# instance in the g#a$h %elo" H #e$#esent the deg#ee o $ollution that is

acce$ta%le and the#eo#e igno#ed and G is sociall. o$timal le&el' The go&e#nment could im$ose a lat

#ate ta9 Q on out$ut to #educe the ca$ital in8ected in $#oduction to inc#ease %e.ond the sociall.?

o$timal le&el G' 7lat #ate can %e conside#ed un8ust in that it is le&ied on le&els O "hich and does

not gene#ate e9te#nal costs( has same eect to all out$ut JG' A ta9 s.stem not conside#ing these is

#e$#esented %. cu#&e RG )<a#tolini @ <onatti( 1,,,-'



ECONOMICS DISCUSSION QUESTIONS 1;

Ree#ences

<a#tolini( S'( @ <onatti( 2' )1,,,-' Endo#enous #rowth and ne#ati$e e%ternalities' Milano( Ital.:

7onda4ione Eni En#ico Mattei'

<i#d( D' )1,+;-' Internali&in# ne#ati$e e%ternalities' !i#o$ian ta%es $ersus the Coase theorem'

)<#ennan @ <a#nes?Mu#$h.( !516-' Supply and demand ' Manato( MN: The ChildKs 3o#ld'

7ellne#( 3' )1,;,-' Competition amon# the few' "li#opoly and similar maret structures' Ne" Jo#:

A'A' Gno$'

acett( S' C' )1,,+-' En$ironmental and natural resources economics' Theory( policy( and the

sustainable society' A#mon( N'J: M'E' Sha#$e'

ende#son( ' D' )1,>+-' Supply and demand ' Chicago: Uni&e#sit. o Chicago *#ess'



ECONOMICS DISCUSSION QUESTIONS 1>

Macho&ec( 7' M' )1,,>-' !erfect competition and the transformation of economics' 2ondon:

Routledge'

*o"e#s( ' ' )1+,+-' )ealth and welfare' A study in sub*ecti$e economics( the nature and scope of

economic inquiry' *hiladel$hia: s'n

Sa$$inen( L' )!556-' Stretchin# the scope of economics( on the nature and impact of +ary S, -ecer.s

economics imperialism' 2a$$een#anta: 2a$$een#annan tenillinen .lio$isto( Gau$$atieteiden

osasto'

Siemens( 7' '( @ Goseld( M' )!55,-' /e#ati$e e%ternalities and equilibrium e%istence in competiti$e

marets with ad$erse selection' <onn: 7o#schungsinst' 4u# uunt de# A#%eit'

economics complete

Documents