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Microeconomics Questions - Essay Example

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Name: Course: Instructor: Date: Macroeconomics Determinants of price elasticity of demand: some of the determinants of price elasticity of demand include substitutability. This affects elasticity in such a way that a product with greater number of substitutes has a greater price elasticity of demand…
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Microeconomics Questions

Download file to see previous pages... Therefore, a product with high total revenue is less elastic than the products with less or low total revenue. Bottled water is elastic since there exists alternative or substitute to bottled water like un-bottled water which might be cheaper. Toothpaste is also very elastic since there exists very many brands of toothpaste and some people may go without using toothpaste so they consider it not so necessary. The cookie dough ice cream has inelastic demand for changes in price leads to a small change in quantity demanded. This is because the product is not a necessity. Fresh green beans have an elastic demand for it is a perishable good, a small change in price will lead to a larger change in quantity demanded. Also, given a short time period allowed for the customers to adjust to the prices, the elasticity of the fresh green beans less elastic. For gasoline, being that there exist several substitutes for the product, there is a greater elasticity of the product. That is, a small change in the price can lead to a larger change in the quantity demanded. Externalities: a positive externality is the effect of a project on the people not involved in the project but in a way that is productive or in a beneficial way to those people. For example, a project to tarmac a road leading to a sugar cane plantation benefits even those who are not concerned directly with the plantation when they enjoy the goodness that comes with a tarmac road even to access market with their own goods. On the other hand, a negative externality is the negative effect of a project or a cost to those who are not directly involved in the project. For instance, a paper milling factory emits poisonous gasses and heavy compounds to the environment posing the society around to health risks. The government therefore needs to encourage and promote positive externalities by providing subsidies and reducing taxes for the materials that are used in such projects. For negative externalities, the government needs to price higher the license for starting up such projects, can impose heavy taxes, tough regulations and charges or even issue a barn order to initiating such kind of projects. For instance, for the above examples, the government needs to subsidize the road construction or remove taxes on the materials used to build the road and in the case of the paper milling company; the government should impose tough regulations such as the factory should put up a hospital to treat the affected people freely and also to carry out frequent checks on the people to find out any developing diseases from them. Others can be to force the factory to reduce their waste into less harmful gases by installing pollution control devices which might be very expensive to install or impose heavy taxes on the factory if it is necessary to exist. Short and long run: being that the customers are so many in the restaurant on a daily routine and they eat without tables brings some sense that the issue on the table is not a very urgent need that should be dealt with as a short run problem. Therefore, the restaurant can just continue making profits with the already available fixed inputs and equipment and plan to provide tables much later after the business has made enough profits. In the short run therefore, the restaurant can major on how to increase labor that is used to prepare ...Download file to see next pagesRead More
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