Economics Assignment: Elasticity, Costs, GDP, and Unemployment

This economics assignment explores a range of microeconomic and macroeconomic concepts, beginning with an introduction to economics and its relevance to human action and resource allocation. The assignment delves into the concept of elasticity, including price elasticity of supply, its determinants, and the factors influencing it. It examines how different goods and services exhibit varying degrees of elasticity. The assignment then explores the cost of production, differentiating between explicit and implicit costs and analyzing the effects of marginal, average variable, average fixed, and average total costs. It also addresses the law of diminishing marginal returns. Furthermore, the assignment investigates the effects of advertising, market research, and business strategies. It also covers the impact of inflation on GDP, the classification of individuals in the labor force, and the labor force participation rate. The assignment utilizes examples and tables to illustrate key economic principles. In conclusion, the assignment provides a comprehensive overview of key economic concepts, their interrelationships, and their impact on business and society.

ECONOMICS

Table of Contents
ECONOMICS..................................................................................................................................1
INTRODUCTION...........................................................................................................................3
ELASTICITY ................................................................................................................................3
1. Concept of price elasticity of supply with its 5 determinants.................................................3
2. Examination of the list according to its elasticity...................................................................7
3. Justification.............................................................................................................................8
TASK 3............................................................................................................................................9
1. Differentiation between in explicit cost and implicit cost .....................................................9
2. Effects of different costs.........................................................................................................9
3. Law of diminishing marginal return ...................................................................................10
TASK 4..........................................................................................................................................10
1) Advertising reduce and increase economic well-being.......................................................10
2) Market research and brand management are redundant and to look what customer have
already bought to find out the customer want: .........................................................................11
3) Payoff matrix........................................................................................................................11
4) Excerpt..................................................................................................................................11
TASK 5..........................................................................................................................................13
1. Inflation make nominal GDP and reason why GDP does not reflect total production.........13
2. Classification of person as employed, unemployed or not in labour force...........................13
3. Labour force participation rate..............................................................................................14
4. Excerpt..................................................................................................................................14
CONCLUSON...............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Economics is a scientific term which has the broad referring in which it is related with the
human action as well as also relates with the human choice and utilisation of scare resources.
There are many theories, principles and models that deal with how the market process works.
The deep description about the economics is focus on how the wealth created and distributed in
communities, how the scare resources allocates with their alternatives. Human wants and needs
are an important term in the economics sense. The present report emphasise on elasticity, cost of
production, GDP, unemployment and business growth, market power and business strategy. All
such terms of the micro and macro economics are going to discuss in this assignment(Williams
and Laurens, 2010).
ELASTICITY
In economic science term elasticity is defined as the measure of responsiveness of
demand and supply of goods to increase and decrease in its price. Hence, the change in quantity
in the comparison with change in demand and supply can determine with the help of elasticity
concept. It can calculated with the help of following formula:
Elasticity= percentage change in quantity / percentage change in price
It is a degree through which individual, consumer or producers change their
demand or the amount which supplied in the market due to change in price and in income. If the
outgo level is high then suppliers supply more and more goods on the other hand if financial gain
level is not high then producers start supply low amount of products(Zavadskas and Turskis,
2011).
1. Concept of price elasticity of supply with its 5 determinants
It is a measure which helps in determine about the quantity supplied of good and service
in the response in change in price.
This is defined in the quantitative form in which the percentage change in quantity
supplied is divided by the percentage change in price. The major determinant of price elasticity
of supply are as follow:
a)When PES >=1, then supply is price elastic
b)When PES < 1, then supply is price inelastic
c)When PES = 1, means the good has unit elasticity

d)When PES = 0, supply is perfectly inelastic
e)When PES = infinity, supply is perfectly elastic
All the following situations are the key determinants in the field of price elasticity of
supply and demand.
1. Elastic: If there is a slight change in the price examine due to high change in supply then
it is the situation of high elasticity. In such condition E= ∞.
Price of apple (in £) Supply (in units)
30 100
30 200
30 300
According to this table there is not a single change is monitor in the price of apple in the
market but their supply is changing continuously with high difference. It is a situation of highly
elasticity.
2. Perfectly inelastic supply: According to this aspect, it is identify that if there is few
changes examine in the price but its supply remains constant or with some changes. In
this scenario E=0.
Price of apple (in £) Supply (in units)
Illustration 1: high elasticity
of supply, 2017

20 50
30 50
According to this table data it is identify that price of apples is fluctuate but its supply is
remain moderate at each and every situation. This is a situation of perfectly inelastic.
3. Highly elastic supply: When percentage change in quantity supplied is more than the
change in price, then this condition is called as the highly elasticity of supply. According
to this scenario E>1.
Price of apple (in £) Supply (in units)
10
15
100
200
By taking into account of this graph it is clearly refer that change in price is 5% but the
change in supply quantity is just doubled of the previous quantity. Hence, it is a situation when
the supply is highly elastic in nature.
Illustration 2: perfectly
inelastic supply, 2017

4. Less elastic supply: When the change in price is more than the change in quantity supply
then the position of less elasticity is analyse. In which the price is change more and more
but quantity is less changed(Schumacher, 2011).
Price of apple (£) Supply (in units)
10
15
100
120
By consulting this tabular data, the measure thing which is conducted is that the change
in price of apples is about 1% but change in supply quantity is less than 1%. whenever such type
of scenarios occur the only condition which can be said is that it is elasticity is less flexible.
Illustration 3: graph of high
elastic situation, 2017

5. Unitary elastic supply: When both the changes I:e change in quantity is equal to the
change is supply are equivalent to each other then such action is termed as the unitary
supply of elasticity. Their is no major changes occur in such situation.
Price of apples (in £) Supply (in units)
10
15
100
150
By using this tabular form data it is analyse that both the changes are in the same nature
with the 1% occurrence. This is situation of the unitary elasticity of supply which can be measure
few times.
Illustration 4: Less elasticity
graph, 2017

Above all mentioned situations are the major determinants of the price elasticity of
supply in which it is measure that these different scenarios are identify in market. So such
situations are helpful in better understanding of the determinants of supply. Because it helps in
making the study more clear and beneficial about economics.
2. Examination of the list according to its elasticity
a) High blood pressure medicines or the Clairol hair colouring:
High blood pressure medicines have the high elasticity of demand because it is a
necessity for an individual on the other hand hair colouring oil have the less elasticity of demand.
Because it is not a compulsory thing for a person. It can be used for sometime not always where
as medicines are used on the daily or regular basis(Pigou, 2013).
b) A holiday to Fiji or petrol for car:
Petrol in car is a necessity for an individual hence, it has the high elasticity of demand
where as on the other hand Fiji holiday has low elasticity because it can managed at any time.
c) Arnott's shortbread biscuit and general biscuit:
Obviously the general biscuits have the high rate of elasticity because they are consuming
on the regular basis where as Arnott's biscuits have high rates which leads in their less
consumption. Not always the quality matter but the price of a product is also matter in its
success.
Illustration 5: Unitary
elasticity, 2017

3. Justification
a) According to the law of demand it is clearly mentioned in the theories of economics that
whenever any product have high demand with low quantity presence in the market its price
generally get high. According to the case study when the cyclone hit the bananas quantity supply
its price get high up to the sky and this leads in creating its demand in control due to shortage of
stock(Peterson, Whitacre and Apt, 2010).
The cyclone made harm to the many bananas tree and it damage them totally. So, this is
the reason behind the high prices of banana because they are not ion the stock so much. All the
fields of banana get wiped out completely.
b) No, the argument which is provided in this video is not true which states that banana is a
luxuries thing. Banana is a simple fruit whose demand get affected due to cyclone. Its crops get
wiped out and that's why it become luxury thing for each and every group of society.
Luxury products are created with the target on some special groups. If banana get luxury
its demand and supply remain moderate. The production activity is taking place to that much
limit which is demanded in the market not more than that(Newbold, Carlson and Thorne, 2012).
After cyclone the price of banana get high because they are in demand. But their supply
get affect due to storm.
c) The impact on the elasticity of supply after the import of banana is become moderate or
unitary. Company import only that ratio of banana which is generally demanded by the group of
society. It helps them in maintain the proper balance in the quantity demanded and the quantity
supply with price.
Illustration 6: supply and
demand curve related
with high prices, 2017

TASK 3
1. Differentiation between in explicit cost and implicit cost
Explicit cost is a cost which is actually incurred by the organisation during production
where as on the other hand they does not involve any cash payment and it is just opposite to the
explicit cost. Explicit cost involves the outflow of cash due to vast use of factor of production on
the other hand there is no cash outlay in implicit cost(Naudé, 2010).
Salary to employees, rent of building, and the advertisement are the examples which are
taken into account of the small business. Like they have to pay rent for building along with that
they have to provide wages to their workers who are helpful in production activity as well as
their product advertisement is another important term for their business. This is an example of
explicit cost.
Implicit cost is that cost which do not occur in reality like interest on partner's capital,
rent pay to partner and salary to owner all such are the examples of implicit cost.
2. Effects of different costs
Marginal cost: This cost is a difference between the two or more cost or when the cost
added by producing each and every single unit. Ford wants to make a new model of car for that
they have to pay less attention and focus on their previous models(Metrick and Yasuda, 2010).
Along with that they also need to pay higher wages to their workers and for this concern they can
purchase many new innovative machines and control the workers turnover by removing some of
the workers.
Average variable cost: It is a cost in which variable cost is divided by the quantity
produced. For designing a new model company have to calculate their average variable cost by
maintain the long term goals. In which they have to include all such factors of tax, bonus and the
money which is going to spent on new design and divide it by the quantity which they produce.
Average fixed cost: It is a fixed cost of production which is divided by the quantity of
production. Hence, cited organisation is already aware about all circumstances of tax which they
have to pay to government on every new production as well as also they need to pay bonus and
make new designs for car. And for this concern they have to calculate all such factors which are
remain fixed in the long run.

Average total cost:It is total of all the cost and then its average get calculated that how
much is going to spent on each and every activity. Hence, company is aware about their expenses
through which their work can be done in a systematic manner(Lee and Lemieuxa, 2010).
3. Law of diminishing marginal return
The law of diminishing marginal return states that when the one variable input is getting
increase by keeping other variable constant and fixed there is a point occurs when marginal
increase in output start getting decrease. This situation is termed as the diminishing marginal
return.
As per the each and every production increment company per cost is get reduce due to
high variety of products and it helps them in increasing their profit. On the contrary if company
produce 40 units with the help of one machine in one hour but its capacity get reduce and its start
producing 30 units per hour. So, company needs to use another machine for 10 unit production
which leads in increasing its cost.
TASK 4
1) Advertising reduce and increase economic well-being
Advertising reduce economic well-being
There are many reasons for advertising reduce economic well-being as the cost that is
incurred on the advertisement is costly, advertisement also manipulate people's taste. There are
two benefits that arise from the brand name as it provide information to the customer about the
quality of the product and give an idea to the firm to maintain the quality to maintain the brand
image(Jackson and Senker, 2011).
Example- Company make an advertisement and spend one lakh rupees then the total cost of the
product will increase by one lakh and affect the consumer's cost price.
Advertising increase economic well-being
Advertising increase economic well being as it provides useful information about the
product as the quality of the product and the services that are being provided with the product to
the customer so that they are aware of the product. It increases the competition in the market so
that customer get the choice whether to buy the product or not .

Example- Company make an advertisement about their product and services so the advertisement
provide the customer information about the quality and standard of the product and make a
difference with competitor product(Bekker, Ryan and Gerard, 2012).
2) Market research and brand management are redundant and to look what customer have
already bought to find out the customer want:
Market research and brand management are the two element that a firm must consider to
develop the business and to increase the band image of the firm. Customer get attracted toward
the brand value of the product so it help in to increase the market value of the firm but the firm
must also consider the willingness of the customer as well as what customers are already buying
so that it may increase the market of the company.
A company can earn more economic profit by adopting following things:
Product Mark ups- When product mark ups are even more and make streaming of business, it tap
into the undiscovered profit centre(Clemens, 2011).
Advertisement- It helps in increasing the market of the product and make aware the customer
about the product and services of the firm.
Client sharing- Client sharing is key to increase the market value of the firm and also to increase
the profitability.
New Additions- It helps in to provide more services to the customer in single one.
Free or discounted offers- Customer get attracted toward the discounts and gift coupon so it
increase the profitability.
Creative Acquisition- Firm which is in loss must make acquisition of any other firm ad it help in
to increase the profitability.
3) Payoff matrix
a. Godrickporter has adopted good strategy to increase its profitability and it must adopt
more strategy to increase it profitability. There is one strategy i.e. Dominated strategy.
Dominated Strategy- it is the best for the player and not influenced by the competitor. In the
given case when Godrickporter has increased its advertising budget then Star Connections do the
same. This is the best strategy when its profit is $ 16000.
b. Star connections has adopted good strategy where the profitability of the company has
increased to $ 15000. In this situation company has adopted Dominated strategy. It is the best

strategy to increase its profitability because this strategy is not influenced by the competitor. In
this situation, star connections increase its advertising budget and its profitability increase to $
15000.
c. There is one incentive that is available to Godrickporter to increase its profitability
from $ 6000 that is Lottery marketing and advertising strategy. In lottery marketing company's
profitability is increased by issuing the lottery ticket. Lottery is opened for few person and the
remaining people who will buy such tickets give money to the company for buying it and it
would help in to increase the profitability.
d. Nash Equilibrium-
The word Nash Equilibrium used in the Game theory. It is used to describe equilibrium and it is
used where each competitor strategy is optimal given the strategies of all other competitors. It is
establishes where there is no unilateral profitable deviation exists. This theory says that no
competitor would take action and they remain same. It is self enforcing. When they are at Nash
Equilibrium they do not have any desire to move because they will be worst off.
4) Excerpt
a) Oligopoly is the market situation where two seller merger together with the intention to
control the price and supply of a product. It lies between the monopoly and monopolistic
competition.
In this situation, both the companies as CSR and Boral merged together to create the monopoly
of their industry to control the market. This step is taken to control the price of the product so
that they can easily influence the market.

b)
Impact on Price-
The price of the product where the two firm want to merge together to form oligopoly
situation in the market affected very much. It affects the price of the product because in this
situation merged firm can control the price of the product and they can easily increase the price
and customer does not have any option to go to the other product because there will be no similar
product in the market(Horton and Chilton, 2010).
Impact on profit-
Illustration 7: Cost Curve, 2017
Illustration 8: Market Demand Curve,
2017

It helps in increasing the profitability of the firm because customers get attracted toward a
single firm because there is no other option is available and the firm may increase the price
which resulted in increasing the profitability of the firm(Becker, 2010).
Impact on quantity-
This Situation may also affect the quantity of the product that is being availed in the
market because merged firm can easily affect the quantity. They can produce number of product
in the or may not supply product to the market to create the demand of their product.
c) There are two options available to regulate the price of the product in joint venture as-
d) Consider post price of their product:
In joint venture, both the firm can follow up their own price and may take decision on the the
basis of their post price of the product that was before the Joint venture took place.
di) Mutual Discussion:
Both the firm may adopt the mutual discussion policy so that they can post better price of their
product which result in to satisfaction of the customer(Bazilian and et. al., 2013).
As per my view firm must adopt the Mutual Discussion price because it will not release
dissatisfaction in their mind and price can come up with their mutual discussion.
TASK 5
1. Inflation make nominal GDP and reason why GDP does not reflect total production
GDP measures the three aspect i.e. Value of the goods from one year to another year,
income from the production and expenditure incurred on goods and services. GDP helps in to
measure the production from one year to another year.
GDP is not a good measure to calculate the production because it needs to be replaced by
more competitive measures and it is determined by the market value of the product so it does not
consider the total production in the market but consider only the total value of production in a
year so it is not a good measure to calculate the production.
2. Classification of person as employed, unemployed or not in labour force
1. 65 year old man-

65 Year old man would be treated as not in labour force because the person has left his job so he
is unemployed but he is working volunteer so considered as not in labour force because it is
required to consider working age also(Auerbach and et. al., 2013).
2. University graduate-
University graduate who has skills and knowledge but is not able to work, considered as
unemployed because the person have skills but not getting any job so it would be considered as
unemployed.
3. A manufacturing worker-
Manufacturing worker who is not in employment but searching job would be considered as
unemployed because he is not working any where at present.
3. Labour force participation rate
Labour force participation rate= Number of people actively participating/Total Number of people
eligible to participate * 100
2,30,000/2,50,000*100 = 92%
Working Note-
Number of people actively participating= Number of people employed + Number of people in
labour force
1,80,000+50,000= 2,30,000
4. Excerpt
a). Dead capital-
Dead capital is the asset that is help but not legally recognized. Due the uncertainty in the
ownership it reduces the price of the property in the market. This is called dead capital. DeSoto’s
‘dead capital’ means the capital that can not easily buy, sell and can not be used as an
investment. Person who live in slums has more capital as compare to anyone realizes. It create
obvious poverty in the informal sector(Agrawal, Catalini and Goldfarb, 2014).
b). This can be advantage to the poorer because they do not need to pay tax on dead capital and
property because this asset do not have recognition in the eye of law but it would not have
recognition in legal term. It would loose the price of the asset in the market. Asset that has legal
ownership considered under tax slab.
c). Activities that are not legal as dead capital are considered in informal economy. Informal is
not criminal in nature but it is conducted without following legal framework(Almlund and et. al.,

2011). Informal economy hinder the economic growth because it directly affect the legal system
of the nation and create hindrance in transaction that took place.
New growth theory-
New growth theory posits desires of the human and unlimited wants. It increase economic
growth and increase the productivity. This theory believes in real GDP per person increases
because of people's pursuit of profit.
CONCLUSON
As per the above discussion it can be concluded that there are many factors that affect the
overall economy of a nation and required to considered for the effective growth of the economy
of a nation. Market situations like monopoly, oligopoly are also affect the economic growth and
it create hindrance in the economy.

REFERENCES
Books and journals
Agrawal, A., Catalini, C and Goldfarb, A., 2014. Some simple economics of
crowdfunding. Innovation Policy and the Economy. 14(1). pp.63-97.
Almlund, M., and et. al., 2011. Personality psychology and economics (No. w16822). National
Bureau of Economic Research.
Auerbach, A.J., and et. al., 2013. Handbook of public economics (Vol. 5). Newnes.
Bazilian, M., and et. al., 2013. Re-considering the economics of photovoltaic power. Renewable
Energy. 53. pp.329-338.
Becker, G.S., 2010. The economics of discrimination. University of Chicago press.
Clemens, M.A., 2011. Economics and emigration: Trillion-dollar bills on the sidewalk?. The
Journal of Economic Perspectives. 25(3). pp.83-106.
de Bekker‐Grob, E.W., Ryan, M and Gerard, K., 2012. Discrete choice experiments in health
economics: a review of the literature. Health economics. 21(2). pp.145-172.
Horton, J.J and Chilton, L.B., 2010, June. The labor economics of paid crowdsourcing. In
Proceedings of the 11th ACM conference on Electronic commerce (pp. 209-218). ACM.
Jackson, T and Senker, P., 2011. Prosperity without growth: Economics for a finite planet.
Energy & Environment. 22(7). pp.1013-1016.
Lee, D.S and Lemieuxa, T., 2010. Regression discontinuity designs in economics. Journal of
economic literature. 48(2). pp.281-355.
Metrick, A and Yasuda, A., 2010. The economics of private equity funds. Review of Financial
Studies, p.hhq020.
Naudé, W., 2010. Entrepreneurship, developing countries, and development economics: new
approaches and insights. Small business economics. 34(1). pp.1-12.
Newbold, P., Carlson, W and Thorne, B., 2012. Statistics for business and economics. Pearson.
Peterson, S.B., Whitacre, J.F and Apt, J., 2010. The economics of using plug-in hybrid electric
vehicle battery packs for grid storage. Journal of Power Sources. 195(8). pp.2377-2384.
Pigou, A.C., 2013. The economics of welfare. Palgrave Macmillan.
Schumacher, E.F., 2011. Small is beautiful: A study of economics as if people mattered. Random
House.

Williams, P.J.L.B and Laurens, L.M., 2010. Microalgae as biodiesel & biomass feedstocks:
review & analysis of the biochemistry, energetics & economics. Energy & Environmental
Science. 3(5). pp.554-590.
Zavadskas, E.K and Turskis, Z., 2011. Multiple criteria decision making (MCDM) methods in
economics: an overview. Technological and economic development of economy. 17(2). pp.397-
427.
Online
economics. 2017. [Online]. Available through:<http://www.businessdictionary.com
definition/economics.html>. [Accessed on 20th April 2017]