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1. Critically analyse and explain the following statements:
‘Wants aren’t insatiable. I can prove it. I get all the coffee I want to drink every morning at breakfast.’
Wants of an individual are unlimited and infinite. The author in the above statement gives an contradictory opinion as he specifies that he wants and gets coffee daily for breakfast in the morning. In this way his demand for coffee is satisfied on daily basis. In this context it can be said that the wants are not insatiable since they are satisfied as and when they arise. But as per the concept of diminishing marginal utility the level of satisfaction or utility of product decreases with each unit of consumption. In this situation the consumer either shifts to substitute product or increase his wants or demands due to decrease in satisfaction level. Thus the given statement cannot be held correct.
‘Goods and services are scarce because resources are scarce.’
The resources are the basis which determines the availability of goods or services. The production of goods and provision of services require the use of resources in absence of which the manufacturing of goods or delivery of services will not be possible. The scarcity of resources is one and the only reason for scarcity of goods and services which result in decrease in supply in accordance with the demand and create an imbalance of demand and supply in economy. Thus, it can be said that the goods and services are scarce because resources are scarce since goods and services depend on resources (Kazar, 2016).
‘It is the nature of all economic problems that absolute solutions are denied us.’
The economic problems that occur can be resolved but not fully. For example the increase in prices of goods due to inflation, scarcity of supply of goods and services due to scarcity of resources etc are some of the economic problems which can be reduced but cannot be eliminated fully. Thus it can be said that the it is the nature of economic problems that the absolute solutions for them are always denied.
2. ‘Empirical estimates suggest the following demand elasticity’s: 0.6 for physicians’ services; 4.0 for foreign travel; 0.1 for newspapers; and 1.2 for radio and television receivers.’ Use the generalisations for the determinants of elasticity to explain each of these figures.
The demand elasticity refers to as the sensitivity of demand with respect to changes in economic variables. These economic variables may be prices of products, consumer income, inflation etc. if the demand elasticity is high it means that the consumers will be more responsive towards the product or goods in context of changes in price or income. The explanations of the given figures of demand elasticity’s in context of determinants of elasticity are as follows:
The demand elasticity for the services of physicians is 0.6. This means that the demand of services will increase 0.6 times of decrease in fees charged by the physician and vice versa. On the contrary on increase in consumer income the demand of services of physician will increase by 0.6 times of increase in income.
Demand elasticity of 4 for foreign travel means that when the price of tour package for foreign travel will increase the demand will reduce by 4 times of increase in price and vice versa. When the income of consumers will increase the demand of foreign travel packages will also increase by 4 times of increase in income of each consumer. Thus it is highly elastic
The demand elasticity of 0.1for newspapers suggest that the demand of newspapers will be very little affected due to change in price of newspaper or income of consumer.
The demand elasticity of radio and television receivers is 1.2 which means that it is elastic to price and income of consumers. The changes in price and income will result in increase or decrease of demand as the case may be by 1.2 times of change in income or price (Soderbery, 2015).
3. Explain the meaning of the following statements:
‘Before economic growth, there were too few goods; after growth, there is too little time.’
The above statement means that before the economic growth and development there is lack of resources in the economy due to which there exists scarcity of goods and products for the consumers as they could not be manufactured in large quantities and also not much time was consumed in manufacture of theses few goods. With the development of economy, the purchasing power of consumers increases with the increase of financial resources in the economy as a result of development and growth (Garcia, 2015). Consequently the demand of resources has increased resulting in the use of more and more resources which involves more time. The consumption of resources requires consumption of time. Thus the people are left with very little time due to more involvement in use of resources and manufacturing of goods and production of services.
‘It is irrational for an individual to take the time to be completely rational in economic decision making.’
As discussed earlier it is the nature of the economic problems and affairs that they do not have absolute solution. The best alternative that is chosen after economic decision making process is able to resolve the economic problem only up to a partial level and not fully. Due to this the efforts that are involved in the decision making process for resolving the economic affairs are wasted. The time and resources that are used in the decision making process also get wasted resulting in an increase of overall cost for the business to which the economic problem relate. Therefore it is considered as irrational for an individual to waste his time in making the economic decision making process more effective for solving the economic p[problem as the cost increase in the form of utilisation of resources without generation of results and the opportunity cost involved in wasting the time is also high. Rather than wasting time in rational economic decision making efforts can be put in other processes which may be beneficial.
- García-Rubio, R., Bayón, L., Otero, J.A., Suárez, P.M. & Tasis, C. 2015, "Economic Study of Problems of Depletion of Several Interrelated Non-renewable Resources",Computational Economics, .
- Kazar, A. & Kazar, G. 2016, "Globalization, Financial Development and Economic Growth", International Journal of Economics and Financial Issues, vol. 6, no. 2.
- Lindahl, T. 2012, "Coordination problems and resource collapse in the commons — Exploring the role of knowledge heterogeneity", Ecological Economics, vol. 79, pp. 52-59.
- Soderbery, A. 2015, "Estimating import supply and demand elasticities: Analysis and implications", Journal of International Economics, vol. 96, no. 1, pp. 1-17.
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