Work on Economics - Essay Example

? Economics Economics Q = 10,000 – 9,000P When p= 0, Q = 10,000 – 9,000(0) Q = 10,000 When Q=0, 0 = 10,000 – 9,000P P= -10,000/-9000= $ 1.1 When P= $25, Q = 10,000 – 9,000(25) = -215,000 When P=$35, Q = 10,000 – 9,000(35) = -305,000 Price ($) 35 25 1.1 305,000 215,000 10,000 Quantity Demanded The elasticity of the demand is calculated based on the changes in price while all other factors are held constant (Gans & Mankiw, 2011). It therefore, gives a measure of responsiveness of quantity demanded depending on the changes of prices of the Justcookbooks.com while the other factors are held constant. Price elasticity of the demand = Proportionate change in quantity demanded Proportionate change in price Price elasticity of the demand = Q1 – Q2 (Q1 + Q2)/ 2 P1 – P2 (P1 +P2)/ 2 Price elasticity of the demand = -305,000 +215,000 (-305,000 + 215,000)/ 2 Price elasticity of the demand = 35– 25 (35 – 25)/ 2 Price elasticity of the demand = 2/2 = 1 Since, the price elasticity of the demand is equal to one, the demand for the online Justcookbooks.com have a unitary elasticity. This is because small changes in price undertaken do not affect the total revenue generated from the books demanded. As a result, an increase in the price further than the price of $ 35 will not affect the demand for the books. With a unitary elasticity, it is not business worth to undertake the business from its current state as the price increases will not affect the revenues generated (Mankiw, 2012). It is therefore, not worthwhile to undertake a business that does not have a positive feedback on the amount of revenue generated. Incase, the quantity of Justcookbooks.com sold amounts 22,000 per month online. Incase, the quantity of Justcookbooks.com sold amounts 22,000 per month online. Annual fixed cost Technology (Web design and maintenance) $5,000 Postage and handling $1,000 Miscellaneous $3,000 Inventory of Justcookbooks.com $2,000 Equipment $4,000 Overhead $1,000 Total cost $16,000 Average Total Cost (ATC) = Total Cost / Output of quantity sold Total Cost = Average Total Cost (ATC) * Q (Output of quantity sold) Total Cost = Average variable cost + average fixed cost Total Cost = 20 Q + 16000 Total Cost = $20 * 22,000 + 16,000= $ 440,000 + 16,000 = $456,000 Marginal Cost More than often, the marginal cost is calculated, as the additional cost incurred when an extra one more unit of the Justcookbooks.com is produced (Mankiw, 2012). With the equation total cost = 20 Q + 16000, the total cost goes up by $20 each and every time an additional good is sold. Therefore, we take the coefficient of Q which indicates the quantity demanded that gives a constant marginal cost is $20 per unit sold. Implications of Long Run and Short Run Period In most cases, companies face a lot of challenges while carrying out its operations in both the long run and short run period. This is because in the short run, one factor of production remains constant as it is always assumed to be in fixed supply. Therefore, the essential capital inputs for example, the cost of equipment remains fixed while the other costs incurred remain varied over time (Mankiw, 2012). More than often, the law of diminishing returns applies in the short run period, as more units of a variable input is added to the fixed amounts of equipment, which brings about the change in total output that rises at first and thereafter falls with time. Nonetheless, in the long run, all factors of production are considered to vary with the quantity of goods sold over time. In the long run, the output of the business will respond to changes in factors of production inputs that are usually referred to as returns to scale. This ranges from increasing, constant and diminishing returns to scale. Diminishing Marginal Returns and Economies of Scale Both the diminishing marginal returns and economies of scale are phases under which a product in the market has to undergo over time. Under the law of diminishing returns, an addition of one type of production input while the other inputs remain the same, at a specific point of production increases the demand for the good at a diminishing rate. Under the diminishing marginal returns from the sale of the product undergoes different sales levels including the increasing inputs that cause the sales level will go up at an increasing rate (Gans & Mankiw, 2011). However, after sometime the diminishing returns, at some point of the sale will go up at a decreasing rate. On the other hand, the economies of scale ensure that as the sales level of the Justcookbooks.com increases they can be purchased at a lower cost per book thus reducing the cost of accessing the books for resell. This is because; economies of scale offer the most efficient specialization of fixed production costs through the equipments. As a result, the average fixed costs will decline more as the costs spread across more and more units of goods that are sold. Market Structure Most companies have a market structure that is usually defined by the organization and other characteristics that make up the market in which operates in. The market structure upon which Justcookbooks.com online operates in is one that is that of perfectly competitive because there are many firms that offer similar online services and as a result, the vendors are prices takers of the prices upon which the books are retailed at to its consumers (Mankiw, 2012). Nonetheless, the market does not always offer an opportunity for profit maximization because there is no barrier to the market entry. As a way, of ensuring that there exists a guarantee of success in the perfectly competitive market several factors that include high economic efficiency and increasing the level of innovativeness of the business are essential. More so, it includes the demand innovation and high levels of economic efficiency that ensures that there are more customers who purchase Justcookbooks.com online. This is possible through the discovery of new forms of demand from the Justcookbooks.com consumers while adapting to the existing product. Price Discrimination Through price discrimination, varied customers can be charged different prices on the same product. This offers an opportunity to earn higher profits as compared to the charge under the standardized price that the seller charges all the consumers the same price (Gans & Mankiw, 2011). In most cases, price discrimination depends with the income, age, ethnicity, or geographic location of the consumers. Nonetheless, there is no true cost differential basis to justify the different prices charged to the consumers. Price Discrimination Strategy A pricing strategy that undertakes pure price discrimination that charges customers different prices based on the maximum price they are able to offer for the same product or service. As a result, the price discrimination, undertaken places customers in specific groups based on definite attributes that ensure varied charges for each group (Gans & Mankiw, 2011). Nevertheless, it is cautious to consider whether differences in price elasticity of the market demand will allow the seller to charge different prices besides ensuring that barriers to prevent consumers from moving to another supplier is not possible. Government Taxes More than often, the government exercises new controls over the constituents of national economies through the imposition of taxes. This involves the use of direct and indirect methods of collecting taxes in order to finance its budgetary activities. Nonetheless, the government can decide to impose taxes that are to bring control measures from adverse effects that are more likely to occur. The tax the government intends to impose on Justcookbooks.com is called a proportional sales tax (Baumol & Blinder, 2012). This tax is meant to controlling the likelihood of overeating that could lead to other health issues, including obesity and heart disease. This is achievable because the proportional sales tax to be imposed on Justcookbooks.com increases the price under which the books will be retailing in the online market. According to economists, proportional tax is a class of tax whereby tax is charged based on a constant rate for a specified product. As a result, there is a proportionate change in price once taxes have been imposed as it increases with the price of good at a given proportionate rate. The sale tax is a levy based on tax paid on the purchase of goods and services (Baumol & Blinder, 2012). Nonetheless, sales and excise tax imposition is entitled to certain specific exemptions. Justcookbooks.com kind of sales tax is special because it is expected to be higher than the normal sale tax value imposed to control the likelihood of overeating that leads to health issues. In most cases, imposition of sales taxes on consumer goods influences consumer behavior. This is evident by the shift of the supply curve in case the sales tax rates increase the prices of consumer goods increases. As the price of Justcookbooks.com increases the supply good decreases this is because an increase in sales taxes translates to higher cost of doing business that eventually results in higher prices for new products (Baumol & Blinder, 2012). Unlike the previous price, that was to be issued to customers that resulted to the vertical axis of a supply curve, the rise in price from sales tax will cause the supply curve to move inward. It is therefore, essential to consider that reductions in supply will ultimately correspond to existing prices. More significantly, the increase in cost of availing goods reflect the fact that businesses will be forced to purchase less numbers of Justcookbooks.com for the same amount of money it had budgeted initially. With the introduction of the sales tax to be imposed on online Justcookbooks.com products, there will be a shift of supply and demand curve from the equilibrium price as a result, of changes in retail prices as compared to previous forecasted price. More significantly, the increase in price as a result, of imposition of sales tax causes the supply curve to shift inward thus, it leads to a secondary effect on the equilibrium price of the online Justcookbooks.com. More than often, the equilibrium price is affected because it is the price at which both the producer's supply to the market matches with consumer demand at a stable price (Baumol & Blinder, 2012). Because the introduction of the sales tax leads to an increase in the price of goods, it consequently causes the equilibrium price of Justcookbooks.com to fall. As a result, of the retail price rise it becomes more difficult for businesses to carried out as there is low expectation of profit increase from selling goods. Alternatively, the consumers will change their buying behavior as they seek to purchase less of the more-expensive goods. As the government intends to impose sales tax on online Justcookbooks.com products, there will be a shift in the burden of increase in the price to the final consumers. More so, the changes in retail prices as compared to previous forecasted price will lead to readjustments in the final cost of the online Justcookbooks.com (Baumol & Blinder, 2012). More significantly, the increase in price as a result, will lead to an upward shift in price at which the producer will supply to the market therefore, the final consumers incur the total expenses brought about by the sales tax. In my own opinion, the collection of revenue from the citizen is a good way to finance programs to improve health. This is because, in the recent times United States has experienced an increase in health costs as a result, of increase in the cases of overeating related problems that lead to obesity and heart attack (Baumol & Blinder, 2012). More so, majority of those who suffer from obesity are the young people. Therefore, an increase in the price of the online Justcookbooks.com will act as a control measure of keeping check health issues while collecting revenue to fund the health schemes. Apart from sales tax the government can impose the property and employment tax to increase revenues, it collects from taxpayers. In the employment tax, the government can collect tax from an individual who have income from both employees’ paid and self employed individuals (Baumol & Blinder, 2012). On the other hand, the property tax is imposed on real property including land and permanent structures for example, buildings. Absolute and Comparative Advantage With the opportunity, that arises for Justcookbooks.com to becomes uncontrollably successful in the United States it is considerable relevant to make a decision to export the product overseas. More than often, in economics both the absolute advantage and comparative advantage give an explanation as to why trade is taking place between two countries. The absolute advantage arises from the capability to produce a good or provide service at a lower cost per unit as compared to cost at which all other entity in the same industry in the production of good or service (Tucker, 2011). As a result, companies with absolute advantages in its market niche can produce more products and services using a smaller number of inputs as compared to what another company producing the same product will use. Therefore, with an absolute advantage accrued to a company it can reduce costs and boost profits. On the other hand, comparative advantage offers trade to an outside country that has similar economies in terms of raw materials and cost of production. Therefore, for a company to have a comparative advantage it has to have an opportunity cost over the others in the industry in the production of goods and services (Tucker, 2011). As a result, the decision JustJustcookbooks.com .com that has become an uncontrollably successful in the United States and intends to expand by exporting the product overseas involve influence of comparative advantage. This is because, it has a smaller opportunity cost by expanding its products to other overseas countries apart from its previous market niche in United States. Multinational Corporation Issues As a multinational corporation, JustJustcookbooks.com .com expects to face several changes that arise from its local venture in the United States into the international market. These challenges include accessing of cheap source of labor because there is a need to employ a higher level of a workforce that comes about with an increase in cost (Grant, 2005). With specialists needed in the fields of research, design, and development ensures that there is well established market for successful venture. Another problem, JustJustcookbooks.com .com as a multinational corporation is yet to face is that of the cultural dimension. This is because the local markets are different from the international environment (Grant, 2005). As a result, it becomes hard for the company to undertake international expansion using oversees structures, strategies and management approaches as a way of ensuring success in the international market. In addition, as JustJustcookbooks.com .com intends to grow into a multinational corporation the laws and regulations that govern the countries to be served oversee is different as compared to that of the home country. More so, the different governments found oversee have always been associated with building obstacles that will lead globalization. Finally as a multinational corporation it is not easy venturing into a market that has fierce competition over consumers (Grant, 2005). As a result, the presence of the lead countries will lead to the increase in creativity and innovativeness to ensure that it remains competitive in the market. Marginal Utility from Purchase of Third Luxury Automobile In economics, marginal utility describes the additional satisfaction that a consumer gains as a result, of consuming an additional one more extra unit of a good or service. Therefore, marginal utility will assist in determining how much of an item a consumer will buy. Marginal utility falls into both the positive and the negative marginal utility (Baumol & Blinder, 2012). An individual derives positive marginal utility as soon as the consumption of the additional item they purchase increases the total utility. On the other hand, negative marginal utility ensures that the consumption of an additional item utilized by an individual immediately after purchase decreases the total utility. The decision to buy a third luxury automobile brings about a positive marginal utility because the total utility derived from its use increases. Labor Unions More than often, the labor unions are organizations that are set up to negotiate with corporations and other organizations on behalf of union members about their salaries and working conditions. More so, the power of labor unions depends on its restriction of labor supply and increase in labor demand (Vedder and Galloway, 2002). Therefore, just as cartels deal, labor unions carry out negotiations through collective bargaining as it struggles to ensure that there will be an increase in the wages that employers will pay. In most cases, the optimal higher wage unions ask for is based on the equilibrium wage that is found at the point where labor supply and labor demand curves intersect. Nonetheless, the effects of shift in the equilibrium salary lower the hours demanded by employers. As a result, employers intend to associate a higher wage rate with less work per dollar. Vedder and Galloway (2002) explain the reason as to why they believe that the existence of labor unions have lead to adverse effects on not only the employment population ratio but also the employment rate in the labor market. More so, the effects of labor unions influenced highly the auto and steel industries that have resulted in union militancy in coal mining employment problems. The presence of the labor unions has lead to the elimination of employment in most of the large industries. This is because of the effects of the existence of labor unions that have materially lowered the level of employment from its inception. In most cases, labor unions struggle to achieve minimum wage that suits its members given the working conditions in their employment sector. As a result, the minimum wage and living wage laws that are usually advocated for by the labor unions can create a deadweight loss. This is because it can cause employers to overpay their employees for work done as a result, it prevents those workers with low skill levels from securing jobs (Vedder and Galloway, 2002). More significantly, the base of a price ceiling by the labor unions when negotiating minimum wages create deadweight losses that consequently lead to low production and decrease in the supply of goods and services below the amount consumers truly demand. In the end, the consumers experience shortages because production is below demand levels while the producers earn less than they would otherwise expect from the market. The elasticity of labor demand is usually measured based on the effects of changes in the ruling market wage rate on the responsiveness of demand for labor. Therefore, labor unions affect the elasticity of labor demand because firms that operate in a highly competitive market whereby most of their products final demand is price elastic always have less market power to give a higher wage costs to their own consumers (Vedder and Galloway, 2002). As a result, the demand for labor in such industries may become more elastic. However, firms that sell their products in areas where their final demand is inelastic can pass on higher costs of increasing wages of employees to consumers. Vedder and Galloway (2002) emphasis that the presence of labor unions have lead to adverse effects on the real gross domestic product (GDP) and economic growth. Even though, some individual workers are believed to have gained more benefits from the existence of labor unions, the aggregate economic impact as a result, of labor unions existence is strongly negative. Based on a variety of statistical techniques, carried out the labor unions are responsible for the reduction in the United States output by over trillions of dollars lost over time in the form of real gross domestic product (GDP). Income per capita is affected by the actives of labor unions. This is because the labor unions contribute to the decline of income inequality as it is existent in the labor market with a lot of administrative monopoly power (Vedder and Galloway, 2002). As a result, when labor union rates fall sharply the effects on the existence income inequality is more significant as it increases drastically. Therefore, labor union influence remains one of the underlying causes that contribute to the increase in income inequality in the different industries. Population growth and aging is affected by labor unions. This is because the presence of trade unions has lead to drastic changes in the compositions of labor markets. This is because more employees are joining the workforce and fighting for better wages through labor unions. Therefore, there exists a shortage of workers because labor unions advocate for push up wages in the labor market (Vedder and Galloway, 2002). The firms are more likely to respond to this pressure by labor unions by employing more people into the workforce, by giving flexible working practices. Because the existence of labor unions, affect the workforce leading to effects on production levels it also affects the marginal costs, marginal revenues, and profits that arise from industry operations (Vedder and Galloway, 2002). Therefore, the employers decide on wage rates that are more likely going to minimize the marginal costs while it focuses on attaining a substantial increase in marginal revenue and profits levels in the market. References Baumol, W. & Blinder, A. (2012). Economics: principles and policy. Mason, OH: South- Western Cengage Learning. Gans, J. & Mankiw, N. (2011). Principles of microeconomics. South Melbourne, Vic: Cengage Learning. Grant, R. (2005). Contemporary strategy analysis. Malden, MA: Blackwell Pub. Mankiw, N. (2012). Principles of economics. Mason, OH: South-Western Cengage Learning. Tucker, I. (2011). Microeconomics for today. Mason, OH: SouthWestern. Vedder, R. & Galloway, L. (2002). The Economic Effects of Labor Unions Revisited. Journal on labor research, 23(1), 105-130. Read More