Economics Assignment: Price Elasticity, Diminishing Returns, Labor Productivity

This economics assignment covers the relationship between price and quantity, formula for elasticity, law of diminishing returns, and labor productivity in the US manufacturing sector. It includes a table of contents and references.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................3
Answer 4....................................................................................................................................4
References..................................................................................................................................6

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Answer 1
The relationship between the price and quantity of the concerned product can be seen
to be as follows:
Figure 1: Price and demand curve
(Source: As retrieved from the task file)
a. When the price increases from 0.25 by 20%, then the price becomes 0.30.
Thus, the demand for pop-corn will fall from 12 units to 8 units, thereby reducing the
sale by 4 units. The total revenue in the initial period was (0.25*12) = 3 units. With the fall in
the sales, the revenue becomes = (0.30*8) = 2.40 units, that is, the revenue decreases by 0.60
units.
b. When the price increases from 0.25 by 40%, then the price becomes 0.35.
The demand for the commodity, in this case, falls from 12 units to 6 units, thereby
reducing the sale by 6 units. The revenue, in this case falls from 3 units to (0.35*6) = 2.10
units, that is, the revenue decreases by 0.90 units (Hall and Lieberman 2012).

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Answer 2
The formula for the elasticity, by using average price and quantity, in absolute value
is as follows:
E = [(Q2-Q1)/{(Q1+Q2)/2}]
[(P2-P1)/{(P1+P2)/2}]
In this situation,
P1 = 0.15, Q1 = 20
P2 = 0.25, Q2 = 12
Therefore, the value of the price elasticity can be seen to be as follows:
⸫E = [(12-20)/ {(12+20)/2}]
[(0.25-0.15)/ {(0.15+0.25)/2}]
⸫E = -8/16
0.10/0.20
⸫E = -0.5/0.5
⸫E = -1
Thus, the price elasticity in this case is equal to -1.
Answer 3
The economics, the law of diminishing returns is the fall in the marginal increase in
the output of a producer, with the increase in the amount of one of the factors of production
while the quantities of the other factors remain constant (Rader 2014). In this context, in the
lawn mowing business, in general, there remains a limit of how much area of land that

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business can mow. If that is the scenario, if the business goes on recruiting friends, then the
area of land remaining same, with additional increase in the number of friends, the area
mowed by each friend will decrease while they have to be paid the same level of wages. This
in turn will lead to diminishing return in the long run, even if the friends are employed at
wage levels lower than market levels (Varian 2014). However, if there is no limit on the area
of land which your business is allowed to mow, then the diminishing returns is not expected
to occur for the concerned business and the business is also expected to be benefitted by
hiring friends.
Answer 4
Based on the data retrieved about the labour productivity in the U.S. Manufacturing
sector (measured in terms of output per hour), the average growth rate of the productivity
(obtained by calculating the mean of growth rates of the same in four quarters of each year)
from 2008 to 2017, can be seen to be as follows:
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-6
-4
-2
0
2
4
6
8
10
Annual Growth Rate of Labour Productivity
Figure 2: Labour Productivity Growth Rate (2008-2017) in output per hour
(Source: Bls.gov 2018)

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As is evident from the above figure, the growth rate of labour productivity can be seen
to be seen to be negative in 2008 (-4.6%). However, the same can be seen to be increasing
significantly in 2009 (7.4%), before starting to decrease post 2009. The growth rate can be
seen to be becoming negative from 2011 (-0.12%) continuing till 2015 (-1.2%) before
becoming positive (1.22%) in 2016. In the last year, 2017, the growth rate of the labour
productivity of the U.S. can be seen to be only 0.65%, which is considerably low as
compared to the economic conditions of the otherwise prosperous and developed country.

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References
Bls.gov 2018. Labor Productivity and Costs Home Page (LPC). [online] Bls.gov. Available
at: https://www.bls.gov/lpc/ [Accessed 14 Sep. 2018].
Hall, R.E. and Lieberman, M., 2012. Microeconomics: Principles and applications. Cengage
Learning.
Rader, T., 2014. Theory of microeconomics. Academic Press.
Varian, H.R., 2014. Intermediate Microeconomics: A Modern Approach: Ninth International
Student Edition. WW Norton & Company.