Microeconomics

1.

a) It is possible to disagree with the first statement. If a person drinks all the coffee he or she wants in the morning, it does not mean that he or she will not want more coffee in the afternoon or the next day. His or her desire for coffee becomes insatiable with time. Moreover, a person has a number of other desires to be satisfied as well and “having more of one good thing usually means having less of another” (Jennigs, F. & McGraw-Hill, B., 2012, 4). The last statement confirms the fact that an individual will as well want other things to consume or use and his or her desires will always be insatiable.

b) The statement about goods that are scarce, because stating that the resources are also scarce, is kind of reasonable. One of the definitions of economic perspective is the study of choice in the world of scarcity (Jennigs & McGraw-Hill, 2012). Though people have endless needs, the resources, which are available to them, are limited. Actually, the above discussed statement ensures the existence of economic studies. If we had unlimited resources and could possess everything that we wanted, the notions of price, cost and value could have been lost. People just would not need to buy anything, because their desires would be completely satisfied.

c) The nature of economic problems truly lies in the fact that we are denied of absolute solutions. It is impossible to make some absolute decisions in many situations, namely in the issues related to resources discussed above. People cannot absolutely satisfy their demands or the most important economic processes in the world – buying and selling – will lose their sense. Besides resources, absolute solutions are not possible/applicable for other economic problems. Warwick (2014) conveys the opinion of Dr. Jim Yong Kim, the president of the World Bank, about how to fight the world poverty. An absolute solution should be and seems to be to promote the economic development (Warwick, 2014). However, Dr. Jim Yong Kim answers that “the solution to poverty lies in the market” (Warwick, 2014, para. 7). He offers to use some effective market tools and the right business models (Warwick, 2014). The world community searches for the absolute solution for poverty, but in practice, the community does not need it. Poor people make the world market work and develop new beneficial strategies. Therefore, absolute solutions are illogic in economics.

2. With the purpose to explain the indices of elasticity or certain goods and services, it is important to understand, which groups have the more elastic demand, as compared to those, which have less. Products and goods, which do not have close substitutes, are characterized by very low elastic demand. This fact is the reason of why newspapers (0.1) and physicians (0.6) have such low values of elasticity. This substitution parameter is one of the three elasticity determinants, which is responsible for the availability of the products or services.

The second determinant is “the importance of the product’s cost in one’s budget.” (Section 3, 2015, para. 3). In this case, even a small change in price causes the increase of elasticity of a service or a product, because people will think, whether it is worth spending money on it or not. This fact explains why the elasticity for demand for foreign travels is the highest among all of the other discussed options (4.0).

The third determinant of elasticity is the time period under consideration. If people have more time to think, whether to buy this or that product or use some service, the elasticity of the given commodity or offer will be medium because a customer may do without it or think longer about spending money (Section 3, 2015). The elasticity index of 1.2 for demand elasticity of radio and television receivers confirms this fact because people think longer whether they need it or not and which type or brand to choose.

3.

a) There are some reasonable arguments to support the statement that “before economic growth, there were too few goods; after growth, there is too little time.” It is quite obvious that economic growth leads to boosting the level of production because selling and buying the goods generates the financial currents, the movement of which is necessary for economic growth (Chapter 6, n.d.). Consequently, the increased level of production means there is a wider variety of goods and services available, while people often have little time to choose.

One more explanation of why the time becomes limited with the current economic growth is that “Study after study has concluded that the main engine of growth is technological change.” (Chapter 6, n.d., p. 3). Scientific innovations provoke the economic growth by implementing certain achievements into people’s lives. As a result, production sphere has too little time to change its technology to produce the renewed goods. A service sector does not often manage to adapt its strategies to current needs of the population. People have too little time to study and accept new technologies. As a result, the word combination “too little time” has a deep meaning in the context of economic growth.

b) It is a rational decision of an individual to take time to be completely rational in making an economic decision. “Rational” is a positive characteristic for both – an economic decision and a person. Jennigs & McGraw-Hill (2012) write that a rational person will always compare the costs and benefits before making a rational decision and this process takes quite some time. Glimcher & Fehr (2013) have investigated the process of decision making from neurobiological point of view and have also applied the received model to the economic science. The scientists offer a two-stage model for this process: “the first of these stages is

concerned with the valuation of all goods and actions; the second is concerned with choosing amongst the goods or actions presented in a given choice set.” (Glimcher, 2013, p.502). If to formulate this statement in the economic context, an individual may consider the possible costs spent on each item, the benefits he or she receives and then choose the best option. Therefore, it is rational for a person not to be in a hurry, when making economic decisions, because only in this condition the decisions can be rational.

4. A single farm should regard the price for market products as being fixed, however, agricultural prices are highly volatile. Examining the issue of volatility of agricultural prices, Madre & Devuyst (2016) write that “large variations in prices create a high level of uncertainty among producers and consumers.” (para.2). A single farm is powerless, because it functions in the atmosphere of uncertainty and has a minimal influence on the prices of its products. One more factor that decreases the power of a single farm is the fact that it cannot chose a competition-based method of pricing, “when the price covers costs (cost of raw materials and the cost of operating the business) and is comparable to the competitor’s price.” (Methods to price your products, 2016, para. 4). This method gives a chance for the farm to at least be able to better manage its business, if it cannot have the full control over the cost of its products. The consumer-based and cost-based pricing methods are not the best to maximize the company’s profits and it can be the main goal in the discussed situation. Thus, in the conditions of monopoly and agricultural business, a single farm is really powerless, because it cannot increase its revenues and calculate more or less stable production costs.

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