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ECO101 Principles of Microeconomics Assignment
1. Critically analyse and explain the following statements:
a) ‘Wants aren’t insatiable. I can prove it. I get all the coffee I want to drink every morning at breakfast.’
In the above statement Author has stated that its demand of coffee every morning at the breakfast is fulfilled which proves that the wants of an individual gets fulfilled. But this statement is not true as the wants of an individual are unlimited and it is not possible to satisfy the every want. The demands or wants of an individual gets changed with the change in the environment, time, trend or preference. There are chances that the demand of the individual gets changed and which can result in the shift in the demand of the coffee among the consumers or increase in the demand of the substitutes of the coffee. According the law of diminishing marginal utility, when an individual increases the consumption of an additional unit of a good then the units of satisfaction it is gaining from the each successive unit decreases. And the resources are available in limited quantity. When the consumption of coffee will increase then this limited availability of the resource will affect the demand of the coffee (Brown, et. al., 2014).
b) ‘Goods and services are scarce because resources are scarce.’
Yes, the above statement is true that the limited availability of the resources affects the production of the goods and services according to the demand of the consumers. The availability of the resource is limited or scarce which creates an impact over the production of the required quantity of the goods or services. These limited resources need to be allocated for the production of the different goods and services in an effective manner so as to produce the different products and services for the consumption of the consumers. When the resources are available in limited quantity then the products or services produced using these resources are also in limited quantity. This shortage also affects the prices of the goods or services (Brown, et. al., 2014).
c) ‘It is the nature of all economic problems that absolute solutions are denied us.’
The above mentioned statement states that the wants of the society cannot be met as the resources are scarce in nature. Economic problems are those situations or a problem prevailing in front of the society or the economy and the reason of these economic problems is the never ending wants of the human beings and the limited availability of the resources or the scarcity of the resources to meet these demands or wants. All these elements are related with each other as the production process gets affected due to the limited availability of resources and this production lacks in meeting the demands of the society which creates an economic problem (Belousov & Penukhina, 2010).
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.
Demand elasticity is a measure used for the purpose of measurement of the amount change in the demand of a product or services due to the change in the price of a product or service. The reason behind this change is the change in the different elements of the economy which creates an impact over the prices of the goods and services. Higher demand elasticity will leads to heavier burden on the producers of the goods and services. The above mentioned figures and elasticity’s are explained below:
1. In the first case, the demand elasticity for the services of physician is 0.6 times, which explains that fall in the price charged for the services of physician will result in 0.6 times increase in the demand for the services.
2. In the second case, the demand elasticity for the foreign travel is 4.0 times, which explains that the decrease in the price of the tour packages has resulted into increase in the foreign travel.
3. In the third case, the demand elasticity for the newspapers is 0.1 times, which explains that the fall in the price of the newspaper will results in less change in the demand of the product.
4. In the fourth case, the demand elasticity for radio and television receivers is 1.2 times, which explains that fall in the price of the radio and television services will result in increase in the demand of radio and television services (Schiff & Becken, 2011).
3. Explain the meaning of the following statements:
a) ‘Before economic growth, there were too few goods; after growth, there is too little time.’
The above stated statement is true and it explains that with the change in the economic conditions of the country or economy the production of the goods and services has increased due to the development of the technology but the time available with the individuals in decreasing. With the growth of the economy, trade of goods and services is increasing which has resulted into increase in the production of the goods and services due to the increase in the demand of the goods and services by the consumers. This increase in demand of the goods and services has increased the involvement of the individuals in the production process which has resulted into availability of less time with the individuals (Walker, 2012).
b) ‘It is irrational for an individual to take the time to be completely rational in economic decision making.’
With the change in the technology and the environment in which an individual exists, the factors or other elements also changes. This change in the other factors creates an impact over the decision making process of an individual as well as affect the effectiveness of the decision making process of an individual. All the resources are available in a limited quantity so the business needs to use these resources in an effective way for utilising these limited resources in the most suitable manner. And the time is also available in limited quantity and business need to take decisions on the basis of the situations, conditions, past experiences so as to run the operations of the business (Walker, 2012).
Belousov, D.R. & Penukhina, E.A. 2010, "Technological and economic problems of the long-term development of the Russian economy", Studies on Russian Economic Development, vol. 21, no. 4, pp. 343-358.
Brown, J.H., Burger, J.R., Burnside, W.R., Chang, M., Davidson, A.D., Fristoe, T.S., Hamilton, M.J., Hammond, S.T., Kodric-Brown, A., Mercado-Silva, N., Nekola, J.C. & Okie, J.G. 2014, "Macroecology meets macroeconomics: Resource scarcity and global sustainability", Ecological Engineering, vol. 65, pp. 24-32.
Schiff, A. & Becken, S. 2011, "Demand elasticity estimates for New Zealand tourism", Tourism Management, vol. 32, no. 3, pp. 564-575.
Walker, B.L. 2012, "Edward B. Barbier Scarcity and Frontiers: How Economies Have Developed through Natural Resource Exploitation. New York: Cambridge University Press. 2011. Pp. xviii, 748. Cloth $105.00, paper $48.00",The American Historical Review, vol. 117, no. 1, pp. 158-159.