Assignment Managerial Economics

Added on - 29 Apr 2020

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1ECNOMICS FOR MANAGER: ASSIGNMENTANSWER-1:a)The idea of own price elasticityEd=%ΔQ%ΔP,helps to detect the responsiveness ofquantity demanded to the changes in price and also makes us aware of whether thedemand is elastic (e>1), inelastic (e<1) or unitary elastic (e=1). The elasticity of differentfood category clearly reveals that people crave for unhealthy foods like sweets and sugarbased snacks as they have lower elasticity reflecting inelastic demand. That is for oneunit change in price the amount change in demand would be less than one unit. Thedemand for fruits, vegetables and milk are elastic in nature referring to greater fluctuationin demand in response to price changes. The consumption of unhealthy goods leads toincreased heart diseases, diabetes and cancer which further pushes up the governmentexpenses on health Government in order to discourage the consumption of suchunhealthy goods, imposes tax on sugar based items.DWLQE0SD1098PS (with tax)10080
2ECNOMICS FOR MANAGER: ASSIGNMENT(Source: Author)Suppose the price of cupcakes was $9 in the equilibrium and per unit tax of $ 2 have beenimposed. Now consumers have to pay $10 as $1 they pay as tax and sellers receive $8contributing to the tax payment. The impact of tax shows that prices of cupcakes rise and thatdiscourages less consumption evident in falling quantity demanded. Government is able to earntax revenue. Part of consumer surplus and producer surplus will leak out of total surplus andcreate deadweight loss symbolic of market inefficiency.ANSWER-2:a)The simple idea here refers to the fact that recessionary impact can be battled throughexpanding the demand of the economy. The basic focus is on the demand side thansupply side. Demand can be expanded through two channels. One is increase in thegovernment expenditure and other is decrease in rate of interest. This indicatesexpansionary fiscal and monetary policy that helps boost the depressed spending level ineconomy. The Great Depression led to fall in economic output through a chronicdownturn in the economic activities. Increasing demand pushed for more production thatenhanced economic output in the short run. The impact is temporary because over timethe increase in the output and price level would also put upward pressure on rate ofinterest. This would attract consumers to reduce consumption and save more.
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