Elasticity, Marginal Analysis, and Opportunity Costs
Unit I introduced the benefits of markets to improving outcomes for producers and consumers. Unit II examined the role of costs and prices in decision-making. For this assignment, you will answer a series of questions in the form of an essay. Support your answers with research from at least three peer-reviewed journal articles using the CSU Online Library (or other sources).
1. Research elasticity information for two particular goods: one with an elastic demand and one with an inelastic demand. Using elasticity information you gather, predict changes in demand. The United States Department of Agriculture website has a good resource to help with this.
2. Describe how marginal analysis, by avoiding sunk costs, leads to better pricing decisions.
3. Explain the importance of opportunity costs to decision-making and how opportunity costs lead to trade.
4. Evaluate how better business decisions can benefit not just the producer but the consumer and society as a whole. In your evaluation, contrast the deontology and consequentialism approaches to ethics.
Your essay must be at least three pages in length (not counting the title and references pages) and include at least three peer-reviewed resources. Adhere to APA Style when writing your essay, including citations and references for sources used. Be sure to include an introduction. Please note that no abstract is needed
The link below is the US department of agriculture
https://data(dot)ers(dot)usda(dot)gov/reports.aspx?ID=17825
Elasticity
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Elasticity
Q1.
Elasticity is an economics term that describes a change in seller’s and buyer’s behavior in response to a change in prices for a service or good. Thus, demand elasticity or inelasticity is determined by how demand changes with a decrease or increase in a product or service’s price. Some goods, like washing machines, are foods with elastic demand because a price change will cause a major change in consumer behavior. If washing machines become cheap, more people would be willing to buy them, and if they become expensive, they would shift their priorities. According to GFK (2021), the positive growth of the post-Covid washing machines markets is due to little or no changes in prices during the pandemic. Thus, as the pandemic continues to fade out and economies recover, more people have bought washing machines in 2021 than in 2019. However, increased prices of raw materials and geopolitical conflicts are poised to reduce demand shortly.
On the other hand, tobacco products have not shifted in supply despite recent tax increases on the product. According to Immurana and Iddrisu (2021), a key objective of increasing taxes on tobacco products is to increase their prices so that consumers can be discouraged. However, even the increase in prices has not dissuaded smokers in developing nations whose meager income, compared to developed countries, would be more restricting to spend on tobacco products. In this regard, while tobacco products’ prices are poised to increase into the future, the number of consumer products is not expected to decrease significantly.
Q2.
Marginal analysis refers to examining the additional benefits of a particular activity compared to the additional costs incurred by the same activity. This concept is an essential aspect of the pricing decision-making process. This analysis focuses on the cost or benefit of the nest individual or unit. Examples include the cost of adding one employee to the workforce or the production of one more widget. In the case of adding an employee to the workforce, the marginal analysis will establish and compare the benefits against the cost of hiring. Through this information, organizations determine the best way of pricing to reap maximum profits based on the current circumstances (Hutchinson, 2017). The analysis, however, is more effective in its role in pricing when sunken costs are excluded from the variable. In other words, the recessed cost of hiring an employee or manufacturing a new widget cannot be recovered. Thus, when it is included in the pricing strategy as part of the marginal analysis, it will cause products or services to be unnecessarily expensive. In the case of goods with elastic demand, such products or services will be overlooked by consumers, especially where there are alternatives in a competiti...