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(Solution) Economics for Business: Assignment

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Added on  2021-04-17

(Solution) Economics for Business: Assignment

   Added on 2021-04-17

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Running Head: Economics for BusinessEconomics for Business
(Solution) Economics for Business: Assignment_1
Economics for Business1Question 1:Define and explain the three key economic ideas:People are rational: Economic theories are based on the assumption of rationality. Peopleaim to achieve their optimum bundle which gives them the highest level of satisfaction andbenefit, from the given resources or alternatives. Individuals make their decisions that arelogical and prudent. Agents work at the margin. A consumer tries to maximise his level ofsatisfaction while a producers tries to maximise his profits. A consumer consumes acommodity up to the point where his satisfaction from the successive unit turns to zero, withgiven level of income and prices[CITATION Boj15 \l 16393 ]. For example, if John consumespizza, he will eat till his stomach is full but will stop after that even if the prices decline. Thishappens because of law of diminishing marginal utility. Satisfaction from every next slice ofpizza decreases as his hunger reduces.People respond to incentives: Incentives can influence the buying behaviour of theconsumers and selling behaviour of the suppliers. As people are rational and they comparethe costs with benefits, they respond to incentives. It may have a positive or negative impact.When the price of a good falls, people consume more of the same good. On the other hand,the producers reduce their production and lay-off its labour when the prices decline in themarket. Here, the price fall acts as an incentive for consumers to buy more of the commodityand acts negatively in case of producers. Producers decline their output because their profitmargins decline and vice versa. This will continue till the point when the increase in demandwill push the prices back to the original point and production will increase[CITATION Mat14 \l16393 ]. For example, decrease in price of cell phones will increase the demand. Supplier ofthe same will reduce their production because price fall acts as a disincentive for them.Optimal decisions are made at the margin: There are relative trade-offs associated witheconomic decisions based on the individual’s preferences and priorities. The decisions madeare relative to the current scenario, there are additions or subtractions to it. The decision is noton the extremes of all or none. The decision is based on the additional benefit that is derivedfrom the subsequent unit along with its additional cost. If the expected additional costexceeds the expected additional benefit, the decision is unfavourable. This leads to optimumdecision based on the preferences and the given circumstances. The optimum is achievedwhen the two are equal. But as the additional units increase, the marginal utility from eachsuccessive units keep on decreasing until it turns to zero where the consumption orproduction stops. For example, a shoe producer can use marginal analysis to determine the
(Solution) Economics for Business: Assignment_2

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