Macro and Microeconomic Evaluation - Essay Example

Question 1 Businesses usually use certain economic incentives to encourage customers to come and make a deal with them. By offering incentives, an individual’s consumption pattern is altered, and the change is based on the type of incentive offered. Restaurants in the United States offer great deals to customers, thereby influencing either positively and negatively the behavior of individuals in terms of how much to spend and consume (Chari et al. 61). Dunkin Donut is the best fast food restaurant. It provides buy-one; get-one deals and coupons, which encourages me to purchase its fast food products. For instance, the incentive of buy-one, get-one free deal allows me to buy two products such as donut at a cost of one donut sold by another fast food restaurant. In making this choice, it is pertinent to understand that this economic incentive leaves me better off if I happen to purchase that product. It rewards me with money, among other financial gain including better price and free items (Chari et al. 73). The deal is a positive economic incentive since to bring about positive behavior to me because it rewards people financially for making certain choices and behaving in a particular way. Question 2 On March 2013, the prices of hamburger among other fast food products augmented due to increase in the price and tight supply of beef. The change in price affected the demand for hamburger, its substitute and complementary products (Chari et al. 97). With $10, a consumer purchased four ground beef hamburger, which was enough for a family with two children. In retrospect, the increase in the price of beef made the family with $10 only to afford two hamburgers. The effect was experienced in almost all households, which leads to a decline in quantity demanded since the income does not change correspondingly and in response to the price increase. The price change caused a disincentive to purchase a hamburger and people, including me shifted from hamburgers to a chub ground turkey. Despite my preference to the hamburger, the price change, without a corresponding change to income made me purchase fewer hamburgers. In this perspective, the quantity of hamburger that I demand for the month decreased. It means my consumption pattern changed from consuming 15 hamburgers per month to relatively ten hamburgers. I could not take this for long, so I had to abandon the desire for a hamburger and shift to cheap ground turkey. The behavior for consuming ground turkey changed from zero to 17-ground turkey per month. The size of elasticity of demand for the hamburger is one, meaning that for one unit change in the price of hamburger, the demand for hamburger I demanded changes with one unit (Chari et al. 109). The elasticity of demand is unitary elasticity. My cross-price elasticity of demand is 0.24. The change in the price and supply of beef products causes the change in the overall price of hamburger. Beef products affect that hamburger directly since beef is an important ingredient that makes hamburger. Increased transportation fee, transactional cost and the production cost may cause the price of hamburger to increase (Chari et al. 85). Other factors that affect the demand for the product is declining ingredient for beef and reduced consumer preference. Question 3 Minimum wage is in favor of employees, particularly lowly skilled workers since it ensures the firm remains responsible in ensuring that their workers earn enough income. Before defining the minimum wage level, the government determines the economic status of the economy and evaluates favorable living standards. A minimum wage increase by the government makes more skilled and educated employees seek a pay increase while people that are unskilled and uneducated are awarded a higher wage. Workers and firm surplus includes the extra work force that is readily available for the firm to employ and the number firms that are ready to absorb the workforce at any cost (Chari et al. 69). Unemployment refers to the percentage of unemployed labor force that is willing to take employment opportunities at the current wage rate. Deadweight loss is the loss of welfare arising from a certain policy, which does not benefit any of the participants. Labor demand is directly affected by the minimum wage policy. With a higher minimum wage and the unstable economy, employers are less willing to employ more workers and prefer to pay the existing employees for working more hours. It, therefore, makes it more difficult for minimum wage employees find a job in a bad economy. It is plausible to note that minimum wage policy increases the unemployment rate. The welfare of the individual can be made better-off or worse-off depending on the actual effect on the employment. The employed minimum wage workers get a wage rise, therefore, increasing their living standard (Chari et al. 78). Minimum wage affects product management because it changes the cost of producing different brands in the firm. Imposition of minimum wage increases the cost of production to the firm. This change in the overall cost of the firm reflects on the price of products offered in the market (Chari et al. 111). Question 4 The health insurance policy has made individuals more vulnerable to demand health care services often. They undertook risky measures due to the assurance of future compensation or settlement of health care cost. If the demand for health care increases ceteris paribus, the cost of delivering health care services increases. With a high increase in health care cost, individual will take a protective measure due to the uncertain price change by applying health insurance. The demand for doctors depends on the health care demand, so an increase in demand for health care services increases the number of students likely to pursue medicine Chari et al. 163). The demand for health care services has a trickle down effects in the health care industry. As the number of students aspiring to become doctors increases, new medical schools emerge while the existing one modifies their programs to compete effectively with the new firms (Chari et al. 177). More lecturers and professors will be demanded by the medical schools thereby allowing professors to choose the school that presents best terms of employment such as good working condition and with good reputation that will secure them the employment opportunity in the future. Works Cited Chari, V V., P. J. Kehoe, and National Bureau of Economic Research. Modern macroeconomics in practice: How theory is shaping policy. Cambridge, MA: National Bureau of Economic Research, 2012. Print. Read More