ECO 5

Define a price floor and how it affects resource allocation in a market. Give a real world example of a price floor.

A price floor is a government or group imposed price control or limit on how low a price can be charged for a product. A price floor must be higher than the equilibrium price in order to be effective, the price at which supply and demand are equal. If not, the market would not sell below the equilibrium, and the price floor would mean nothing. Additionally, sellers who charge a price lower than the imposed floor price would be breaking the law. Price floor hurts society more than it helps. It may help farmers or the few workers that get to work for minimum wage, but it only helps those people by hurting everyone else. Price floors cause a deadweight welfare loss. The problem is that since it creates an excessive supply, usually the government ends up buying and stockpiling the extra quantity. Often the government destroys the surplus or allows it too spoil. Example: Minimum wage

a. Calculate price elasticity given the following information. Is the curve elastic, inelastic or unitary elastic? Original Quantity:3550 lbs of coffee New Quantity: 7100 lbs of coffee Original Price: $15.99/lb New Price: $7.99/lb b. (6 pts) Given the elasticity calculated in part a, will the seller increase or decrease their revenue if they lower the price of coffee? c. (8 pts) Explain the determinants of elasticity. (20/22)

A.Calculate Qave (3550+7100)/2 10650/2=5325 Calculate % average in Q |7100-3550|/5325 3550/5325=0.6666 Calculate P ave (15.99+7.99)/2 =11.99 -> 12 Calculate % change in P |15.99-7.99|/12 |8|/12=0.7 E=(7100-3550)/5325 / (divide) (7.99-15.99)/12 42600/-42600=-1 The demand is unitary elastic. B. His revenue will the stay the same because the demand for his product is unitary elastic. C.1- The availability of close substitutes-If a product has many close substitutes, for example, fast food, then people tend to react strongly to a price increase of one firm's fast food. Thus, the price elasticity of demand of this firm's product is high if there are many close substitutes. 2. The importance of the product's cost in one's budget-If a product, such as salt, is very inexpensive, consumers are relatively indifferent about a price increase. 3. The period of time under consideration.Price elasticity of demand is greater if you study the effect of a price increase over a period of two years rather than one week. Over a longer period of time, people have more time to adjust to the price change. If the price of gasoline increases considerably, buyers may not decrease their consumption much after one week. However, after two years, they have the ability to move closer to work or school, arrange carpools, use public transportation, or buy a more fuel-efficient car.

In which of the following markets did deregulation contribute to increased industry concentration?

Airlines.

A contestable market is

An imperfectly competitive situation that is subject to entry

In a market economy, the people who receive the goods and services produced are those who:

Are willing and able to pay the market price

Ethanol: What's the point? What is the economic justification for the regulations surrounding adding ethanol to gasoline? Do you agree or disagree? Why do you suppose the federal government gives special treatment (subsides) to owners of fertile farmland rather than automobile mechanics?

Cars, vans, and trucks mainly run of gasoline and if ethanol is added it will increase the octane in fuel in vehicles. This is because ethanol is harmful to cars as ethanol forms a chemical mix that will cause corrosion in internal parts. So, if ethanol is being used in gasoline fueled vehicles more than the regulated level it will harm engines and will increase the usage of gasoline. The United States government agreed to regulate ethanol to 15% and 85% gas as ethanol emits less carbon monoxide. Also, farmers who have fertile farmland are harvesting corn which corn is the main source to get ethanol so that is the reason why the federal government is giving subsides to farm owners. As for farmers and producers since any slight of financial change impacts their revenues, they defend their claims of the benefits of ethanol. They claim ethanol reduces pollution, it is renewable and that it reduces dependency on biofuels but biofuels aren't meant for all vehicles. Ethanol is environment friendly its being used in gasoline. Which is decreasing the cost of gas. With that said, I would have to agree due to lowering the cost of fuel and being environmentally friendly.

A price decrease will cause total revenue to fall if

Demand is inelastic

When workers move from one industry to another in response to demand changes, this is an example of:

Factor mobility.

Product differentiation refers to

Features that make one product appear different from competing products in the same market.

Student Loans: Good or Bad? Since you are all in this class, I know that you all have to consider how to pay for college and all of you will solve that problem slightly differently, whether it be through paying yourself, help from your parents, financial aid or student loans. Critics of ever-expanding college enrollments argue that many students should not be going to college. Rather, they should be going to trade or vocation schools to become electricians, plumbers, stonemasons, etc. The reasoning is that skilled tradespeople often earn higher lifetime incomes than those who go to college and major in the humanities. The conclusion is that students would be better off because more students would go into trade or vocational schools and on average earn higher lifetime pay. Additionally, with fewer students attending college, tuition rates would decrease making college more affordable. Do you agree or disagree with this argument? Why? If this happened, what would be the impact on student loans (if any)? Be sure to explain your reasoning and use economics to justify your answer.

First of all, the availability of loans has made college access too easy, therefore increasing the demand for college, the education price demand has increased dramatically over the past several years. A skilled trade person earns a higher income through-out their life time. After finishing their training it's easier for them to find jobs, where a student of humanities will take longer finding a job so I do agree it would be a great choice to go to trade school, the option is a great choice for those who seek to learn a trade over seeking higher education. At the end of the day those jobs will not always be available, but they will always be needed, so seeking those avenues is beneficial to both the person seeking the trade and economy as a whole. For instance, a humanities student can become a professor or find a suitable job only after spending a lot of time and money on higher degrees and a trade/vocational training schools help get more experience in the workforce quicker which is a great economic development. Trade/vocational schools is around $33,000 for the entire education and college education costs from $39,880-$138,960 depending on where you decide to go to college too for four years. Students will be in debt for more time than trade/vocational students. If students began to choose trade school over college, I believe there would be a change in college tuition fees because if the demand decreases, which is the main factor that influences the rate of tuition fee, it will make the tuition fee decrease but would only be a short term fix. Students won't have to rely on loans as much compared to if the price of college would continue to rise as it is already. The costs of trade school might have an increase because of its demand just like colleges/universities have now. Over time students are going to want to go back to college and continue their education which will increase the price of tuition.

Which of the following is not a characteristic of a perfectly competitive market?

High barriers

Explain the trends in total GDP and population growth that we see in the US and other high-income countries vs. low income countries. How does this affect overall living standards in these countries?

High income countries GDP develops quicker which makes it accessible to advance in long-term existing principles as they could invest more more on capital goods than the consumption goods, contributing to the higher productivity and improving living standards that are already very good however in low income countries population exceeds GDP making it difficult for low income countries to improve the way they live. It makes the country to devoid positive effects of capital goods and GDP does not grow fast but it affects the living standards of people to remain below average.

The minimum wage debate Are teenagers better off when a higher minimum wage enables some to earn higher wages but causes others to lose their jobs? Explain. Do you agree or disagree with minimum wage? Why?

I believe teenagers are not better off when it comes to higher minimum wage. Because we need to understand the law and demand how it works which I will further explain. It works on the labor in the same way it works on other commodities, and demand for labor declines the imposition of minimum wage and increases the price of labor. By having higher wages it just indicates the company will look for candidates that are more experienced so no training is required however they do this to compensate themselves for the increase of cost of labor. Most of this teenagers with no job experience will be required training if not their chances to obtain the job make it slim as they don't have any experience. This creates the imposition of minimum wage where the price of labor increases and as result the demand of labor declines. The decline in the demand mostly affects the teenagers who have neither work experience nor training as employers look for experienced and trained people to lower the labor cost by doing away with on the job training.

How effective are cartels? Assume that this class was graded on a curve (it is not, but let's just pretend). If the members of your class were to attempt to form a study-reduction cartel in which everyone agreed to study less, which individuals would have the most to gain from the cartel? Which ones would have the greatest incentive to cheat on the cartel? Why? Ultimately, do you think the cartel would be effective in reducing study time for students? Why?

I believe the students that soak in information easily as everyones ability is to understand something when it's different. Students might believe by studying less and creating a student reduction cartel is going be to their advantage because they're trying dictate everyone score as the teacher grades on a curve but in reality they might be the students that don't even need to study and just by observing the lectures and doing the homework they will succeed and will get higher grades on tests which will affect the group that was made to study less. Thats if the teacher its curving on the higher grade of one of the students. But if the teacher is curving on the average overall grade of all the class, then this study group will be to their advantage as the more students that join the more they will gain. Well the students that want get A's to help their degree or program their in will have most incentive to cheat. As they know they need or require a A to get in the program they pursuing, and by studying more and the average grade being lower means its easier for them to get a A. No , because me personally don't do study groups I like to work on my own and everyone schedule is different and it can conflict the meeting they have appointed.

Explain why a perfectly competitive firm can sell as much as it wants at the market price but a monopolist must lower its price to sell more.

In a perfect competitive firm sellers produce quantity and charge price by the demand. In this case the demand curve is equalized with the marginal revenue curve. In this market price the perfect competitive firm are able to sell as much as they without any barrier to entry. Then at this price firms will earn zero profit. The demand curve will be horizontal. Which in a monopolist market the firms maximize their profit by producing at MR=MC and charge a price to the demand curve. So the marginal revenue curve is below the demand curve so they charge a higher cost than the perfect competitive so the curve is downward slopping.

Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run. Is this a good thing or a bad thing for producers and consumers? Explain.

In business sectors encountering monetary benefits, organizations chose to get in and decreasing costs and benefits. Benefits will be constrained below the zero level in light of the fact that monetary benefits occur, organizations chose to get in this market. In business sectors encountering monetary misfortunes, organizations chose to flee, increasing costs and decreasing misfortunes. Benefits will arrive at zero level in light of the fact that financial misfortunes remain and organizations flee this market. Making it commonly something beneficial for purchasers since it implies that buyers have more alternatives at a decreased cost. For makers this isn't really fortunate or unfortunate yet it makes it increasingly troublesome. Makers realize they are confronting a ton of rivalries, so they can't be self-satisfied, however it likewise prompts item development which is useful for the two makers and purchasers over the long haul. In the long run, a competitive firm is in equilibrium when MR=MC=AC. It will produce that output where LMC=LAC. Economic profit = Total revenue - total costs ( implicit + explicit). Economic profit will be zero in perfect competition because if there are positive economic profit, then firms will be attracted to the industry since there are no barriers to entry and exit.

What is price discrimination? Is it price discrimination when a professional football team charges, say, $150 per ticket for 50-yard-line tickets in the lower deck and $50 per ticket for upper-deck tickets overlooking the end zone? Why or why not?

In the book The Economics of Public Issues, price discrimination is defined as the existence of price differences across customers for the same good that are not due to differences in marginal costs of supplying the customers. No, it's not price discrimination because price discrimination occurs when a vendor sells two identical goods at different prices to two different customers. The seats are not the same item thus they have different values. In this case, 50-yard line tickets in the lower deck are not the same as upper deck tickets that overlook the end zone. The vantage points are different, which affects the customer's experience depending on which seats are purchased. If you're on the 50-yard-line you can pretty much see everything and are put in the midst of the action; behind the goal posts you can only clearly see about half the field at best. It is completely fair to sell these seats at different prices. If they would sell lower level seats to players family or friends for $50 instead of $150 but still charge regular fans $150 for the same seats as them that's an example of price discrimination. I'm going to break it down why it's not price discrimination: 1.The team must be able to raise the price of their tickets above the marginal cost without losing their sales to their competitor which depending on the popularity of the games, the team is able to choose the price it set. 2.There must be a difference in customers willing and able to pay for different prices for the same good but customers who are willing to pay $150 for a 50-yard line ticket for a better view versus $50 for an end zone seat. Even though both tickets are for the same game, you would be paying for a better experience. 3.If the team does not prevent customers who paid low prices for their tickets from reselling them as those who resell tickets are called scalpers and will sell tickets at a higher price.

A program of countercyclical payments is best classified as a federal

Income support program.

Which of the following is true about the kink in the demand curve?

It is the result of different rival responses to price increases and reductions.

Which of the following is true for a monopolist?

It must lower its price on all of its units in order to sell any additional units.

Which of the following rules is satisfied when a monopoly maximizes profits?

MR = MC.

Maximum utility is achieved when

Marginal utility is zero.

Discuss a real world example of firm behavior that reduced the level of competition in an industry. What are the opportunity costs of greater concentration?

Market oligopoly firms have the right to participate in rehearses that decrease rivalry, for example, licenses or elite licenses to confine the measure of rivalry. If a particular group of companies sets a common price for their product then all the suppliers in the market will sell at a same rate. So level of competition will be reduced in the economy. Opportunity cost is that, money can be invested some where else were it can generate a return. Therefore, in the carrier business and huge superior organizations such as Delta and United they seem to occupy themselves with ruthless valuing strategies to briefly remove costs to force rivals away. The cellphone communicating business had suggested a merger among AT&T and T-Mobile so the union utilization could decrease rivalries in a particular market. The grain and tobacco markets and associations utilized item expansion and compensating increased charges for rack arrangement as an approach to hinder contenders from entering the business. Pepsi and Coke utilize selective licenses with inexpensive food channels to make a restraining infrastructure in explicit eatery businesses.

The Impact of Changing Healthcare Regulations When an employer chooses to reduce the hours worked by many of its employees to fewer than thirty per week, what might be come of the negative consequences to the business? What damages might the affected employees suffer? What group or groups of people are most likely to be negatively impacted by these changes? What is the impact on overall inequity in the country?

Most of the time employers may reduce working hours to their employees because of the companies budget. For example, I was working 48 hours each week but suddenly the past 3 weeks I was dropped down to 32.5 hours. This was because the company had decrease it's labor budget. By decreasing the workers hours to less than 30 hours per week would affect the business. They may have less people working around the store so this may cause the service to decrease meaning less revenue going in. Less profit and less proficient workers would adversely affect the buyers who might now have lesser items and administrations as there would be a fall in the supply of merchandise and enterprise. This would affect the employees income as they would receive lower wages. This will make monetary issues. When I was supervisor at Taylor Farms, the company had to lower the associates hours and I realized a decrease on productivity by the employees causing an decrease of effective service and production. Decreasing hours from associates hurts them so some prefer not to work as hard and production declines.

Under the market mechanism, a market characterized by external costs will produce too

Much output and too much pollution.

Thinking about a natural monopoly, what is profit regulation? Describe three outcomes/consequences of profit regulation

Natural monopoly appears due to increased fixed costs or increased startup operation costs relative to the amount of market in an industry. It can also occur in industries which require specific technology, raw material or other factors to operate. Natural monopolies take advantage of high barriers to entry in an industry to protect its operations. They require extremely high fixed costs of distribution and large-scale infrastructure to ensure supply. Examples of infrastructure include cables and grids for electricity supply, pipelines for gas and water supply, and networks for rail and underground. These costs are also sunk costs, and they deter entry and exit. Profit regulation caps the total cash gain in a business to a usual gain and happens at P=ATC. Three outcomes/consequences of profit regulation are: 1.Reduced costs for costumers:The cost of the item is reduced for customers than uncontrolled conduct, yet greater than an aggressive market or value effectiveness. 2.Ineffective handling of assets:Bloated expenses happen in profit regulation because markets/firms are using their assets unproductively. 3.Cost plus regulation: In this regulator sets the price which firm can charge by analyzing firm's accounting costs and then adding a normal rate of profit. It's like calculating average cost of production & adding a normal profit than set the price for consumers. 4.Bloated costs:When the business is gaining a usual asset gain, there can't be an incentive to help decrease the price because both have identical gains of assets. Businesses prefer wasting cash to improve the environment workers work at but the price increases and end up gaining the same asset total.

A perfectly competitive firm should expand output when

P>MC

Discuss at least three (3) characteristics of a perfect competitive industry and and one (1) example of which real-life industry come closest to this type of market structure.

Perfect competitive industries are those, which have an abundance number of companies below it and have low barriers of entry. By low barriers of entry we mean, due to the competition, the number of firms will reduce ,which may lead to decrease in competition and increase in profit . So, at this time new firms will enter, in order to share these profits. The three characteristics include:The contribution of producers to the market is insignificant . The production of these producers will not make any changes in the supply curve .The producers should accept the prevailing price of the object in the market . If they try to increase the price, the consumers will buy the same product from other sellers with a lower price .Producers can enter and exit the market without any barriers . The example for this is wheat market. There are many producers for wheat in the market. No one producer can increase the price of wheat in market. If any one producer increase the price, then consumers won't buy from them and will buy wheat with a lower price .

Why are secure property right so important? Given the importance of secure property rights, how can you explain that in the US there is widespread support for programs that take money from one group of people for the sole purpose of giving it to another group of people? What is the justification for this? How do these programs impact long term economic growth?

Political and economic institutions have rules, laws, and customs that guide demeanors to help decide living standards around the world. Daron Acemoglu and Simon Johnson new studies reveals that among these institutions which are well defined and enforce property rights are the most valuable in shaping long-run economic growth and thus prosperity. Property rights are much stronger in nations with common law system. If the government and state officials are not willing to help you protect your rights or belongings, it's more likely they are unwilling to acquire those assets making citizens insecure as they can't plan for the future and won't allow them to make productive long term investments. The governments economic role is to play in a market economy whenever it benefits a governments policy which outweighs its costs. In my perspective, the governments inconsistencies affects citizens of our nation as many of these programs take from other groups to give back more to the wealthy and hoping they create more jobs or assets. The method has proven to not work as the wealthy just get richer and no jobs or new assets are created. On the contrary, other programs are made to help out citizens in need such as medical, food stamps, and housing. The programs are great assistance for people in need but at the same time they hurt our economy. Many citizens take advantage of these programs and decide they will live off it and that will not help economic growth. Our nation needs to find a more productive method to help the minorities rise and help our economy.

Explain the difference between positive and normative economic analysis. Give examples of each.

Positive economic analysis is the scientific or objective study of the allocation of resources. Positive economic statements are always based on what is actually going on in the economy and they can either be accepted or rejected depending on the facts presented. It is based on factual information and uses statistical data, and scientific formula in determining how an economy should be. It deals with the relationship between cause and effect and can be tested. For example, immigration has led to fall in the wages in the border areas of the US. This can be verified by the latest labor data and again it can be true or false doesn't matter but its just verifiable. Normative economic analysis is the study and presentation of policy prescriptions involving value judgment about the way in which scarce resources are allocated. It is also known as Policy economics wherein normative statements like opinions and judgments are used. It determines the ideal economy by discussion of ideas and judgments.In normative economics, people state their opinions and judgments without considering the facts. They make distinctions between good and bad policies and the right and wrong courses of action by using their judgments.Normative economic statements cannot be tested and proved right or wrong through direct experience or observation because they are based on an individual opinion. For example, immigrants should be sent back because they are not anyway beneficial for the economy. This is just an opinion and cannot be verified for the economy.

If a natural monopoly was forced to break up into several small competitive firms, the

Price charged by the competitive firms should increase because they no longer have economies of scale.

Should we privatize Social Security? After reading chapter 20 in the Schiller text and Ch. 23 The Graying of America, based on the economics of the situation do you think that we should privatize Social Security in this country? Why or why not? Describe at least one advantage and one disadvantage to privatizing Social Security.

Privatization means transferring various services which the government owns and regulate to the private sector. One of the main arguments about privatization comes from the inefficiency of the government. It often saids that the government is corrupt and incurrs a lot of expense on providing these services which defeats the whole purpose behind it as the costs are often more than the benefits. Private sector is often termed as cost efficient and so they regarded auto have the best managerial capacity to run these government activities at minimum cost. The government cannot provide everything to the society and so the privatization is must in various industries.The various advantages of privatization are that it is cost-efficient, it often involves efficient and effective decision making and systems in place and free of political influence which takes them less time to complete a given task in an optimum manner. However, there are various disadvantages associated with privatization too which often put them in bad light such as low quality of service and that they are profit driven rather than service and that they are corrupt too and makes side deals with the politicians for profit and to get away with the regulations in place. I believe it should be privatize but at the same time be public depending on every citizen need. Many can't afford it so they should be able to get a government one free at cost. As well if someone that its wealthier should have the option to go with a better privatize company to obtain better service or better advantages.

A market in which final goods and services are exchanged is a:

Product market.

An advantage of set-aside programs over price support programs is that they

Raise the price of agricultural production but do not lead to a surplus of output.

Productivity:

Rises when the ratio of output to input increases

What is price discrimination? Is it legal? Under what conditions can sellers engage in price discrimination?

Selling the same goods or services to different consumers at a different price is considered as price discrimination. It is legal and used widely in many situations around different situations. For price discrimination the market must meet some conditions: The market should be far away from each other. If they are close the chance of arbitrage increase and that will fail the price discrimination. The good shouldn't be reusable and also the goods will be traded for a lower price after one use and that will fail the discrimination. The demand elasticity of the goods should be different in both the market.

If a firm finds that its marginal cost is greater than its price, it

Should reduce production.

Describe the characteristics of a monopolistically competitive industry. You must discuss a minimum of four (4).

So they are four different characteristics of a monopolistically competitive industry which are: Low or free entry and exit barriers. That there's no major entry and exit barriers. It will cause sellers to achieve zero profit in the long run. Products are closely related but are not homogeneous in nature. The lack of perfect knowledge in the monopolistic market. There's no perfect knowledge about the products being sold in the competition so the buyers aren't able to say that they have perfect information about the product before consumption. Lastly, products are sold on the basis differentiated features and quality so the sellers rely on different qualities of the product to put a price. So this helps the company sell the product after differentiation.

In economics, scarcity means that:

Society's desires exceed the want-satisfying capability of the resources available to satisfy those desires.

Describe the 4 causes of market failure. Why is it safe to assume that the government will continue to subsidize inoculations against diseases like whooping cough and small pox for young children?

The 4 causes of Market Failure are: 1. Public Goods-A good or service whose consumption by one person does not exclude consumption by others. 2.Externalities-Costs (or benefits) of market activity borne by a third party. 3.Market Power-The ability to alter the market price of a good or service. 4.Inequity-When the economy can't disperse resources equally. The government has to subsidize diseases such as the whooping cough and small pox as the government provides the vaccinations for young children which brings beneficial externalities. On the off chance that the vast majority of the populace is inoculated, at that point any individual who isn't immunized has an advantage because everybody else is immunized. Many people think if they get vaccinated the government/clinic will be injecting the disease into them and they don't want the government to benefit from them making it a non important issue. The government needs to boost the outside advantages so they will finance vaccinations.

What, How and For Whom? The core of most economics debates comes back to the three core questions that we are trying to answer (what to produce, how to produce and for whom to produce). Do you favor a laissez faire approach or government intervention? Why? How does the government approach impact economic growth in the long run?

The core of most economic debate does come back to the three question, and those questions are directly related to the market allocation of products (with the purpose of both consumption and production), resources, profit, etc. The magnitude/intensity of allocation of the elements by the market is measured as the efficiency of the market. There exists a 'dichotomy' among economists that whether the efficiency can be increased by government intervention or would it get worse due to it. But historically, it has been seen that markets can fail and do fail, and without government intervention, the recovery of the market would be quite slow. I do favor government intervention, but yes, up to some extent. The laissez-faire approach to deal with the market is quite of an ideal scenario, where there are firms and consumers, along with their motive of profit maximization and utility maximization, respectively. Yet, the laissez-faire approach goes back to Adam Smith and other major economists, it has a major limitation. The subject economics describes the real economic events by theories, via a set of assumptions and proposes how would the system run in a 'perfect' environment. Of course, by assuming the perfection is kind of an invalid attempt to alter real situations, but it is necessary to abstract and explain the essence of how do things work. One may reduce the perfection and see what happened to the theory, and hence either update or eradicate it. The laissez-faire is such an assumption. In that environment, a market does not fail usually, and even if it does due to some exogenous factors, it recovers automatically in a spontaneous manner. The proposers of laissez-faire in macroeconomics state it as an essential feature of their approach and thereby saying that the government intervention would worsen the situation. One can refer to the arguments of monetarists for that. They argue something like that as our ability of forecasting is far from a certainty, an interference in an automatic recovery would more likely to induce the elements to react adversely. That is indeed true (refer OPEC's oil shock in the 70's), but only to some extent (refer to the recent crisis). The market does fail, even in laissez-faire in the real world, as the result of less intervention of government induces, even naturally, the problem of moral hazard and economic corruption. The environmental economists have severely criticized the laissez-faire approach, and have deemed it as an 'unnecessary evil'. According to them, a huge unaccounted damage throughout the history has been done due to this laissez-faire, on the environment. They claim that the so-called market allocation doesn't care how much of forests are cut to produce house-furnitures, how much of land-water-soil-air is polluted due to industrial dumps, how much of the life in ecosystem is ruined to make profit, and there SHOULD be a responsibility and moral obligation towards these problems, otherwise life on earth would certainly be threaten. Apart from them, there are cases which do suggest that for a profit of the 'few', they exploited the 'many', in economic terms. A firm should seek profit, but should not induce moral hazard. The recent crisis, in a way, did show the necessity of the government intervention. The basic problem which seems is indeed corruption from both corporate and government's side. The long-term economic growth has itself a debatable definition. As the mainstream economics would say that the long-term growth is a critical real GDP growth rate for a long period of time, there are others who advocate that the numbers such as GDP are far from abbreviating the actual well being of the people. According to them, the long-term growth should be measured by the indexes of the standard of living, human development, etc. In that case, government interventions are indeed very necessary for a stable long-term growth. But, in case of mainstream economics, the intervention of government is considered as a support/rescuer in times of crisis, otherwise, operate as a laissez-faire. A bit extreme case of government intervention termed as centrally planned economies faced a huge failure in the 90's (such as East Germany and USSR), and they are considered henceforth outdated and invalid for now. But the extreme case of laissez-faire is also seen as unstable due to either several debatable internal assumptions such as people are rational and have perfect knowledge of market, or ignorance of equity over efficiency and negative externalities. Even in theoretical terms, it can be stated that sure the government might worsen the situation, but that is when their forecast is just the opposite of what is necessary for reality. We have indeed learned from many events in history, and yet not perfect, but are better at forecasting than the previous era. The market does recovers from market failures, but would recover better as well as faster if proper policies are employed by the government. Yet the government should not obstruct the functioning of the market, but it should act as soon the system seems to fail, either in terms of economic or in terms of the negative externality.

The main difference between perfect competition and monopolistic competition is

The degree of product differentiation.

If a good had a zero price (i.e., the good was free), a rational person would consume

The good until the marginal utility of the last unit was zero

Explain the differences between external costs, private costs, and social costs and how the presence of external costs leads to market failure.

The important distinction to understand private cost to firms or individuals which does not always equate with the total cost of societies product, service, or activity. The main difference between private cost and totals costs to society of a product, service, or activity is called and external cost, while pollution is an external cost of many products. External costs are directly associated with producing or delivering a good or service, but they are costs that are not paid directly by the producer. When external cost arises because environmental costs are not paid, market failure and economic inefficiencies at the local, state, national, and even international level may result in this equation. Private cost external costs equals social costs.

The term externalities refers to

The negative costs and positive benefits of a market activity borne by a third party.

Explain the differences between production costs in the short run with production costs in the long run. Is the investment decision a long-run decision or a short-run decision? Why?

The production costs in short run involves fixed and variable costs. Fixed costs are those which do not vary with the output like rent, wages, depreciation whereas variable costs vary with output like, raw material cost. But in long run all of the costs are variable costs and can vary with the output as the time period is long. The investment decision is a long run cost as the investment with respect capital, machines, buildings would not vary in short run whereas it can vary in long run.

Restricting the Competition Consider two different ways of beating your competition. One way is to offer your customers lower prices and better service. The other is to get a law passed that raises your competitors' costs -- for example, by imposing special operating requirements on them. Can you see any difference between those two methods, assuming that both succeed in keeping your competition out? Describe the impact of each way to restrict competition on prices and output.

Their is many different methods of offering lower prices and better services, and getting a law passed against ones rival companies which I will further discuss. In many situations companies will decide to lower its prices of its commodities and improve services offered to the consumers . When a company gets a law passed against a competitor then it does not only harm the interests of the competitor but also the interest of the consumers. When a company reduces the price of its products, then it will increase the purchasing power of the consumers who can now purchase more goods with the same level of incomes, it increases the consumers welfare. It can also lead to competitors following their lead, lowering their prices, and improving their services order to retain their consumers. When a law passes it can harm the consumer by having a shortage in supply, so higher prices can occur. While the industry works it will benefit and can charge more. Overall my analysis states how the beneficiaries are different in both cases, one being where a company lowers its prices and improves its services, and the other where a company gets a law passed against its rival firms. In the first case, the consumers are beneficiaries, while in the second case existing firms are the beneficiaries.

Perfect competition is a situation in which

There are many firms and no buyer or seller has market power.

When private and social costs are equal,

There are no external costs.

Discuss the benefits and opportunity costs of government farm subsidies. Do you agree or disagree with US farm policy and why?

There is several benefits and costs from the government of farm subsidies. They use subsidies lessen the need for a country to import agricultural goods from the outside the country. Their presence of a subsidy will induce famers to increase their incentivesto produce a commodity which they may not have otherwise produced. Subsidies also stabilize the income of farmers. One example is farmers will not have to wait for their output in the last season to be sold in order to start producing in the current season. They also provide some cushion to farmers against volatile agricultural prices. Subsidies also enable the government to control the amount of food supply. A higher subsidy will induce farmers to produce more and vice versa. It has also many disadvantages. This will lease the commodity sector to over production o that commodity causing adverse environmental effects as well as under production of those commodities which are not subsidized. They also encourage the production of commodities which may not be profitable to produce otherwise. This discourages the import of such commodities which may result in a lower level of welfare of the country while subsidies might be beneficial they are also costly. I actually agree with this as its created to keep agricultural going as weak need to feed or citizens. Yes, for smaller companies it can hurt them but as our economy is recovering still the cheaper it is the better it is for our citizens.

The sum of fixed cost and variable cost at any rate of output is

Total cost.

If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to:

Underproduce goods that yield external benefits and overproduce those that generate external costs.

Who's got a kidney for sale? Since humans have two kidneys, you could sell a kidney and still live a long, healthy life. Given that there is such a demand for organs, do you think we should allow individuals to sell their organs like kidneys? Who do you anticipate would be most likely to sell their organs and who are the most likely to buy organs? Do you foresee any unintended consequences of legalizing the sale of organs?

Yes, I believe if an individual wants to sell their organ they should be capable of. Right now, the active waiting list for kidney transplants is about 99,000 Americans. Most are not going to get their kidneys. People just don't want to give away the organs that other people need. Some individuals are prepared to sell their kidneys, however, and others are prepared to purchase them. However, kidney markets are illegal. The government is setting the legal cost of organs at $0, well below the implicit market price of equilibrium. Thus, an economist might say: there is a shortage, of course, whenever a good's legal price is set below the equilibrium price, the amount requested will exceed the amount provided. Organ markets will eliminate the shortage. You're not kind enough to give a stranger your additional kidney, but for $100,000 you might do it. Organ sales defenders think it will save hundreds of thousands of life every year and assist create the poor richer. It is literally killing individuals to make kidney markets illegal. Many individuals believe that kidney markets would have some unwanted or exploitative characteristics, but these issues can be overcome by properly developing and/or regulating the market. Some object that if kidney markets were legal, the cost of the kidney would be so big that it could be afforded only by the wealthy. But, at the same time, some bad individuals are unable to afford food. As a consequence, we are not prohibiting food markets. Instead, by issuing food stamps, we subsidize the poor. We could also issue tried-and-tested kidney stamps. Furthermore, the cost would probably be much smaller on a free market in the kidneys than it is on the present black market. Ethics has been at the center of the discussion on kidney sales, with two main values fighting for primacy. Proponents emphasize the notion of autonomy— the right of individuals to sell components of their bodies, free from heavy handed paternalism. Opponents invoke norms of equity and justice; the poor sell their kidneys to the wealthy, resulting in systematic exploitation. However, what has been relegated to the margins is complete consideration of the medicine and society consequences of such a scheme. Proponents claim flatly that sales would boost supply and not decrease the altruistic donation rate. They argue that such a market could be regulated efficiently and that the economic windfall would significantly benefit the vendors. But these allegations are not well-founded and may prove to be incorrect. No less significant, the many other possible impacts of enabling a market in organs are not taken into consideration. A major dilemma on this subject will be the poor might be exploited by the rich to sell their organs, and uneducated individuals will sell their organs without knowing the consequences.

In the short run, when a firm produces zero output, variable cost equals

Zero.

Higher prices will increase total revenue if

demand is inelastic