Principles of Economics - Essay Example

Principles of Economics Alcohol consumption largely affects people’s living standards and its abuse has large external effects on others. Not only does its consumption affect negatively the consumer’s lifestyles, it also has implications on productivity of the labor market. Economists’ way of approaching this problem would be trying to establish costs brought about by alcoholism. The second approach would be trying to understand all costs involved into alcohol consumption. This is because alcoholism costs cannot be measured directly since a dollar cannot be easily placed on any loss of production. Such costs are estimated by use of statistical formulae in estimating the costs. It is not possible too to establish the pain and suffering those families of alcoholics face. In order to control the consumption of alcohol, raising exercise taxes would be in public interest since it affects directly on the alcohol prices. The other remedy would be to tighten regulations in the industry to ensure minimal drinking hours and minimal consumption. Making the commodity scarce would mean that its price will increase automatically and this reduces its consumption. Inflation as a factor could also lead to low consumption of alcohol since a general increase in commodity prices does not exempt alcohol from the increase. A prescription drug is that drug, which is licensed and regulated by authorities and before its use requires prescription by a doctor. These types of drugs are different from over counter drugs in that a sick patient will have to buy them in case of prescription. Economically, general increase in price of prescription drugs will have a negative impact on demand of other products and services. By the fact that people cannot avoid taking prescription drugs, an increase in their price means that more money is spent in buying them and this reduces people’s ability to spend more. If people cannot spend more, the demand for other goods will decrease, thereby causing a decrease in supply of other products. However, if the price of prescription drugs decreases, people spends less in buying them, causing an increase in demand for other goods and services since people can spend more thereby causing an increase in supply. In elasticity of demand, economists take into account the changes in demand for a product with respect to the changes in retail price. Comparing the percentage change in the quantity of a product with the same product’s percentage change in price determines elasticity of demand (Mankiw, 2011). Elastic demand occurs when a change in the amount demanded percentage exceeds the percentage change in commodity price, while inelastic demand occurs when the percentage change in quantity demanded is less than percentage change in price. Perfect elastic demand occurs when the quantity demanded changes by such a huge percentage in relation to a close to zero percentage change in price while perfectly inelastic demand occurs when quantity of a commodity demanded does not change whenever there is a change in price. During Christmas season for example, an increase in demand for Christmas cards automatically pushes retail prices of cards upwards. Price elasticity of supply on its part measures to what extend does the price of a commodity bring a considerable change to supplied quantity. Comparing percentage change in quantity supplied with change in percentage change in price results in elasticity of supply Due to the Tsunami, decreases in supply of Japanese cars for example lead to increase in prices. An increasing cost industry is one in which its costs of production increases with a rise in the number of companies involved with the company increases. This is so because every new company in the industry increases demand for inputs and factors of production. These firms operate in an industry enjoying perfect competition and have a long-run industry supply curve that is positively slopped (McEachern, 2012). This curve is a result of industry expansion that translates to increased production costs and it occurs whenever there is new firm entry of firm that is influenced by increase in demand, it causes an upward shift of the long run cost curve of every firm. The more firms keep on entering the industry, the further rightwards the curve shifts due to increased resources bidding. Examples of firms in this industry are firms in construction business and clothes manufacturing companies. In a perfectly competitive market, no individual firm enjoys dominance over other firms, thus no single firm can exert enough market power to influence the market prices. All firms thus adjust to the market prices that are determined to demand and supply and thus, not a single that can charge a price the normal market price (Bensanko, Braeutigam & Gibbs, 2011). Multiple sellers who are enough such that not a single firm could have an impact in the price characterize perfectly competitive markets. The market has the freedom of entry and exit of firms meaning that a firm can enter and exit at own will. The industry also deals with standardized products where products every firm offers products similar to those of its competitors hence there is no firm offering distinct goods from the rest. This model could be rare but its importance cannot be ignored since it helps in analyzing firms with characteristics similar to pure competition, it provides a normal standard for comparing and evaluating the real world’s efficiency. References Besanko, D., Braeutigam, R. R., & Gibbs, M. (2011). Microeconomics. Hoboken, NJ: John Wiley. Mankiw, N. G. (2011). Principles of economics. Mason, Ohio: Thomson South-Western McEachern, W. A. (2012). Economics: A contemporary introduction. Mason, OH: South-Western Cengage Learning. Read More