Solving The Problem How To Produce Economics Essay

Solving The Problem How To Produce Economics EssayIntroductionEconomic is the study of how quite a little satisfy their material take and wants with the available resources. The primary focuses of sparings atomic number 18 distinguished between needs wants, fundamental scotch problems.Needs means something we have to have, ex foods, water, clothes. Wants are something we like to have. To make believe these things nightspot willing face various problems. What to wee, how much to produce, how to produce, for whom to produce, when to produce. Basic economic problems are simply because wants are numberless resources are limited.Resources can be mainly divided into two, natural economic. So we have to make choices to choose wants needs. Its means unlimited wants limited resources force us to make choices.Evaluation of the total (life cycle) costs of alternating(a) solutions to the problem of meeting the requirements of a particular client and choice of the best solution. ANSWERSQ1Q1.1.Market EconomyAn economic dodging in which economic decisions and the pricing of goods and serveare guided solely by the aggregate interactions of a countrys citizens and businesses and there is little political relation intervention or central planning. This is the opposite of a centrally intend miserliness,in which regimen decisionsdrive close aspects of a countrys economic activity.The main co- coordinating device is the terms decided in the commercialise place by means of the interaction between demand and fork up. Hence this as well called free marketplace system because the footing is the main device that solves all basic economic problems. This is called impairment system.It is said that in a market economy, there is an invisible hand operating due to (a) economy is operated by the price system, (b) buyers and sellers respond to price system and accordingly both parties get coordinated, (c) basic economic problems are resolved using the price syst em. In a market economy the basic economic problems are solved and resources are allocated in the following manner.Solving the problem what to produce in which measuring stickIn a market economy this problem is addressed by the private sector entrepreneurs through the decisions made by them. Since they always have the profit motive the trade good and factor prices are considered in decision making. Consumers will create demand in the market by revealing their choice by purchasing goods. Suppliers create the proviso force having considered the commodity price, cost and profit. Accordingly they will allocate to a greater extent resources to produce more(prenominal) of goods with higher profits.Solving the problem how to produceThis problem is concerned with the selection of merchandise order by referring to the factor market. Since the private sector is concerned with profits they will select the most cost effective intersectionion method. Hence the factor with the lowest price will be employ more in the outturn in order to minimize the production cost.Solving the problem whom to produceThis problem stresses how the economys total output gets distributed among people. This is decided by the distribution of income among people. Income distribution is determined by 2 factors which are (a) how much of factors are owned by the household units, (b) the price of such factors.In the market economies individuals can own resources without being subjected to any limitations. The resource ownership is decided by factors such as merits, skills, inheritance and entrepreneurship. Factor price is decided by the demand and affix of the factors. Therefore this problem is solved by the operation of the factor market.Command economyIn command or planned economies, questions on resource storage allocation are decided by a central authority often the government or a state controlled council. However since centralized decisions require plans sterilise in advance for the i n demand(p) outcome, these economies are called centrally planned economies. In these economies, economic activities such as what to produce and how much to produce take place as per the commands of the central planners.E.g. Cuba, North KoreaIn command economies the basic economic problems are solved and resource allocation is done based on a preset plan. This plan is a descriptive statement that illustrates resources, operation of production activities, and distribution of income among households etc. with a glance of achieving a set of selected objectives.Solving the problem what to produce in which beatIt is the central planning authority that decides the resource allocation between consumer and investment goods.Solving the problem of how to produceIt is the central planning authority that decides the production method and they set the plan to match inputs.Solving the problem for whom to produceThis is concerned with the distribution of income among household units. The exclus ively factor that is owned by households is labour. The only means of income available to the household units is salaries and wages. A disparity in income distribution arises to a certain extent due to the differences in quality of labour. Further the quantity of goods and services the households get does non depend solely on their income because government also supplies goods and services at subsidize prices or free of charge.Q.1.2.(a) Market equilibrium price Rs.51(b) Market equilibrium quantity 490 unitsQ.1.3.Effect of tax incomeesThe government imposes taxes on production or sale of commodities which are called indirect taxes. The indirect tax can be either a unit tax or an advoleram tax. If the government imposes an indirect tax on a commodity, it will shift the come forth submit leftward by the amount of tax (i.e if it is a unit tax, the supply curve will shift leftward by the amount of unit tax as supplier is speculate to pay the tax to the government). The effect of t axation will be that it increases the net cost of supplying a particular commodity. Therefore either quantity will be supplied at a higher price than earlier or in opposite words the quantity supplied at each price will be lesser than earlier. insure 2 depicts the incidence of an indirect tax.PriceS2S1CACP2BEP1Qty DP00Q2Q1incidence of tax on the buyers see 2Incidence of a tax on the sellersThe division of the tax burden between the buyers and sellers depends on the elasticity of supply and demand. Given the demand conditions, the greater the elasticity of supply, and the greater the incidence of tax resting on the buyers of a commodity. On the other hand the greater the elasticity of demand, and greater the incidence of tax resting on the sellers of a commodity. Figure 2 represents the case of a commodity with relatively elastic supply.When the tax levied on this commodity, the supply curve shifts leftward from S1 to S2, the prices rise from P1 to P2 and the equilibrium quantity r educes from Q1 to Q2. P2 to P0 represents the unit tax. The price increase from P1 to P2 will be the incidence of tax on the buyers. P1 to P0 represents the burden of taxation (per unit) on the sellers. It should be noticed that in this case of elastic supply curve, the incidence of tax on the buyers is greater than that on the sellers.Imposing a tax on commodity typically increase the price paid by the demanders and decrease the price received by the suppliers. This sure represents a cost to demanders and suppliers, but from the real cost of the tax is the output that has been reduced. The lost output is the companionable cost of tax.As per Figure 2, the concepts of consumer and producer surplus can be used to value the kindly cost of tax. The loss in consumers surplus is given by stadiums C+A and areas E+B represent the loss in producer surplus. Thus the total loss to the consumers and producers of the commodity is the areas C+A+E+B from which C+E is gained by the government a s the tax revenue. The rest of the area A+B is known as the Dead Weight Loss of the tax or the glut burden of the tax. Basically, it is the lost value to the consumers and producers due to the reduction in sales of the commodity. Therefore the government does not get any revenue on the reduction in sales of the commodity. From the view point of society, it is a pure loss dead weight loss.Effect of SubsidiesSubsidies on production will shift the supply curve to the right until the vertical distance between the two supply curves is equal to the per unit subsidy. When other factors remain constant, this will decrease the price paid by the consumers and increase the price received by the producers. A subsidy will reduce the net cost of supplying a commodity. Therefore every quantity will be supplied at a lower price than earlier or in other words the quantity supplied at each price will be higher than earlier.Figure 3 depicts the effect of subsidies.Figure 3(b) FV= $100000 r = 12% n = 5 PV= ?PV = FV (1+r)-n= 100000(1+0.12)-5= $56742.69(c)FVA= Rs. 500000 n= 15 r= 7% PMT =? *Payment500000= (1+0.07)15-1)/ 0.07* PaymentPayment = Rs.19897.31 per annumQ2Q2.1Imagine that the monopolist produced one more unit than Qm. The consumer surplus from that unit would be the difference between the demand curve and the price for that unit. without delay imagine that the monopolist produced all of the additional units it would take to make the efficient quantity. The area of the blue trigon represents the additional surplus that consumers would get if the market were efficient. In other words, the area of the triangle is the loss in consumer surplus that results from the monopolists under-production. It is the true dead weight loss to the society. Therefore it is evident that monopoly is not good from the view point of the society as a whole.A monopoly will be appropriate in a situation where there is a limited supply of a particular commodity which can be considered as a necess ity good where it is required to be offered to the public at a commonsensical price. In such situations the government will establish a monopoly. This will ensure that the particular product or service meets the required standards. E.g. Railway in Sri LankaQ.2.3. (a)Labour per dayOutput per day fringy ProductVariable costAverage CostMarginal Cost000015550101021271008.337.1432081507.56.25431112006.454.5454092506.255.5664663006.528.337504350712.585224007.6925(b)(c )Q.3.1SummarizingThere are various types of economic systems near in the world. Such as Market economy, centrally planed (Controlled) economy, Mixed economy. Each system has various types of advantages disadvantages. assume supply both determine the price of a good. Demand means willingness capacity to pay. Supply is the quantity of goods that businesses willing to produce or sell. In demand supply analysis the concept of equilibrium plays a major role. This is a concept which opposing dynamic forces cancel each other out.When it comes to theory of the unfluctuating economic cost can be divided as, explicit, implicit, fixed variable costs.Explicit costs are the monitory payments it makes to those who supply labor services, material, fuel, transport service etc.Firms implicit costs are the prospect costs of using its employed resources. Fixed costs are not related directly to production rents, rates etc. they can change but not related to output. Variable costs that do change when we produce more more.There are 4 major types of market structures available. Each market consists of different features.The market means any organization where buyers, sellers, particular good are kept cover with each other.