Explain and apply the concept of opportunity cost. Explain the Law of Supply. Ex

Question

Explain and apply the concept of opportunity cost.

Explain the Law of Supply.

Explain the Law of Demand.

Explain the difference between a mixed market economic system and a command and control economic system(Communist).

Define elasticity and explain how a firm may use this concept.

Suppose that when the price of milk rises 10%, the quantity demanded of milk falls 2%. Based on this information is this good elastic or inelastic?

If the price elasticity of a good is .05 what will happen to quantity demanded for that good if the price is increased.

If a good is elastic and the price is increased, what do you believe will happen to total revenue?

Discuss the concept of diminishing marginal utility as it pertains to consumption.

What is the difference between accounting profit and economic profit?

Explanation / Answer

1.

Opportunity cost refers to the cost of second best opportunity. It is also referred as the value of one product foregone, if another product is produced. Implicit cost are also treated as opportunity cost.

for example, a person has the opportunity to do a job and earn $50000 per year or do a business and earn $70000 per year as net gain. Here, the person opts to do a business and earns $70000 and doing a job becomes the opportunity cost that is valued at $50000.

In another application, a worker can produce either 1 car or 5 mobile handsets. Here, the opportunity cost of producing a car is 5 mobile handsets. So, opportunity cost can be used differently in different scenarios. In calculation of the economic profit also, the opportunity cost as implicit cost is used.

2.

Law of supply refers that the supply increases with increase in price. It makes the supply curve to be upward sloping. It helps the suppliers to maximize the profit with increase in price in the market.

3.

Law of demand refers that there is inverse relationship between the price and quantity demanded. It means that quantity demanded, decreases with increase in price. It makes the demand curve to be downward sloping.

4.

Mixed market economic system gives autonomy to the market forces up to a limit and government regulations plan an important role to regulate the economy, whereas the command and control system brings all rights within the hands of the government or state. It brings ownership of assets to the state in command and control system. But, mixed market economy promotes private property rights also that is completely absent in command based economic system.

5.

Elasticity refers to the responsiveness in demand or supply with reference to the change in price. A firm uses the demand elasticity to measure the responsiveness level in demand due to change in prices. If demand elasticity is less than 1 (absolute value), then demand is inelastic in nature and price can be increased by the firm to increase the profit level. If demand elasticity is more than 1, then demand is elastic and firm has to be careful as increase in price may cause the profit to suffer.

6.

It is inelastic, because the % change in demand is less than the % change in price. Here, the elasticity is -.2.

Pl. repost other unanswered questions for their proper answers!

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.