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Principles of Economics - Question 1

Well, there has been panic purchasing and hoarding by the family units with the desires for months-long lockdown in the house. It is hard to buy bathroom tissue during the lockdown when numerous stores are shut down or open on a restricted time period as they were earlier (Dwivedi, 2012). The production lines and the supply chain will likewise be shut down or open with restricted limit and was affected by a great deal.

In light of this desire, the families will unnecessarily buy the tissues to store it in their homes to be utilized and consumed in the washrooms. So that they do not face any kind of shortage or scarcity in this difficult period. Thus, there is a gigantic flood of demand at each value that could be set for the bathroom tissue. This will move the supply curve to one side, causing the price at the equilibrium level of the tissue to shoot up and the amount and output at the level of equilibrium to increment fundamentally also (Jhinghan, 2016). This lopsidedness between the level of supply as well as the demand of the tissue has caused the enormous increment in the cost of the tissue and its lack also since the level of supply can't stay matched up with the huge demand for the toiletries. This can also be shown with the help of a graph:

As shown in the diagram above the original pre lockdown period demand and supply for tissue are at D1 and S1 curve respectively. Both the demand and supply are at the level of equilibrium where the curves intersect. This is giving the equilibrium quantity as Q1 with P1 as the equilibrium price. After the lockdown, there has been a huge increment in the level of demand among the general public so the demand increased and the curve shifted to right from the original demand curve from D1 to D2. Whereas, on the other hand, the supply remained constant and the supply curve stayed at S1. Now, the new equilibrium point gets established at the point where D2 and S1 coincide. This results in giving the equilibrium price at P2 and equilibrium quantity as Q2. 

Principles of Economics - Question 2

Elasticity is “the concept of economics which evaluates the responsiveness of one variable to the variations in another variable” (Pettinger, 2017). On the off chance that the elasticity of demand at present cost is 1.4, the organization should bring down its cost on the item. The diminishing in cost will be counterbalanced by the expansion in the measure of the drug medication that is being traded. 

On the off chance that the elasticity was at the level of 0.6, the organization should increment in the price of its product that is being produced. The expansion in the price of the medication will counterbalance the lessening in the number of units sold and the net income will increment. In the event that the demand is elastic at the given level of price, at that point the drug organization should diminish the cost. Since the diminishing in the cost (Price) will expand the number of amounts sold and it raises the net income of the organization (Jamison, 2013). Notwithstanding, on the off chance that the demand is inelastic at the given level of price, at that point the pharmaceutical organization should expand the price of the product and drug. Since the expansion in cost will diminish in a more modest level of the amount sold and the aggregate income will rise. In the event that the elasticity is at level 1 which means it is unitary elastic, the organization ought to keep up the current level of the price. This is on the grounds that the absolute income is as of now boosted. In the event that the demand is unitary elastic at that amount, at that point, the equivalent change in amount will balance an advanced change in the price of the good that is being traded (Taylor et al., 2017). Thus, the organization will win a similar measure of income whether the cost increments or diminishes.

In the event that the demand is elastic, at that point, the proportion variation in output will be expanded than the proportion variation in price. Hence, as per the given ascent in price will be greater than counterbalanced by more fall in the amount so the absolute income falls. In the event that the demand is unitary elastic, at that point, the proportion change in the level of output will be equivalent to the adjustment in the level of the price (Tucker, 2010). So, the given ascent in cost will be actually counterbalanced by an equivalent fall in the level of output so the absolute income will stay unaltered. In the event that the demand is inelastic, the proportion variation in cost will be more than the proportion variation in the amount of output. So, a given rate of ascending in cost will cause a fall in the amount of output that is sold, so the absolute income rises.

Principles of Economics - Question 3

The long-run average cost curve (LRAC) depicts the cost of output required to manufacture for a long-run period when the business can decide the level of fixed costs. The curve of the LRAC is applied to get the data about the number of firms which can have a face-off in industry and the measures of firms in a market whether the organizations ought to have numerous sizes or will, in general, have the same volume and size (Viner, 2013). The automobile businesses are noteworthy to economies of scale, so the Long-run average cost curve is descending slanting. At the point when the amount of the yield increases then the expense per unit goes down, this circumstance is characterized as economies of scale which is quite beneficial to the industry. It implies the huge manufacturing plant can manufacture products at a lower normal expense than the more modest industrial facility. In the event that LRAC has just manufactured a single amount, it will bring about the least level of average cost (Textbook Equity Edition, 2014). At that point, all the organizations contending in the business ought to be of the same size. In the event that various outputs can be manufactured at the least normal cost, at that point, all the organizations contending in the business will be of the various scope of size.

When there is just demand for domestic automobiles and cars it is sufficient for 2.5 firms to arrive at the lower part of the LRAC, one firm won't be around over the period in the long-run and in any event, one firm will be battling. The demand for domestic automobiles and cars is close to 2.5 occasions the amount produced by the firm at the lower part of the LRAC and the autos makers are four. Along these lines, for this situation the interest in automobiles is close to 2.5 times fold, so the organizations won't have the option to contend (Piros & Pinto, 2013). The connection between the demand for quantity in the market at that cost and the amount manufactured at the base of the Long-run average cost curve will anticipate the opposition in the market. In the event that the demanded output in the market is more prominent than the base of the Long-run average cost curve, at that point, numerous organizations will be ready to be to have faced off and competition in the market. In the event that the demanded amount in the market is somewhat higher than the amount at the base of the Long-run average cost curve, scarcely any number of firms will have the option to compete in the market industry. Furthermore, if the quantity that is demanded in the market is not exactly the amount at the base of LRAC, a restraining infrastructure will be present in the industry. The single firm may have to produce a manufacturing plant, so more modest firms may be ready to have competition with the bigger firm (Pettinger, 2017). On the off chance that the quantity that is demanded of a certain item in the market is a lot higher than the amount found at the lower part of the LRAC curve, the market will have numerous organizations on rivalry, where the manufacturing cost is mostly reduced. In the event that the quantity that is demanded in the market is not exactly the amount at the lower part of the LRAC curve, there will be only a single firm in the market.

Principles of Economics - Question 4

The gross domestic product incorporates human resources per individual, physical capita per individual, and innovation per individual. Australia is a populated nation. Gross domestic product per capita is determined by dividing the GDP by the populace. Some average pay and low-salary nation’s financial matters become more elaborate than the high-pay nations. Average salary nations like India have a lower level of human resources, physical capital, and innovation which have bigger minimal consequences for these nations than the high-pay nations like Australia, which have elevated levels of human resources, physical capital, and innovation (Jhinghan, 2017). The economy of progressed nations has changed from the provincial and horticultural economy to an economy dependent on innovation, manufacturing, and service-centered economies. In higher salary nations like Australia, United States, the degree of speculation is equivalent to the low pay nation and the average pay nation doesn't have the large effects on the grounds that progressed nations have elevated levels of the capital venture. Along these lines, the minimal increase from the extra speculation is moderately less. The ventures and the creation of new innovations have consistent losses on the higher progressed nations. Mechanical development can adjust the consistent losses to the ventures on human resources and physical capital (Coyle, 2015). The vice versa happens in the country of Afghanistan as it is not as much progress as that of Australia or the USA.

The advancement of new innovation is the acceptable path for an economy to decrease the lessening peripheral returns of the capital. The increments in the human and physical employees likewise increment the GDP per capita of a nation. In the high - salary economy nations, a sound climate for the development of GDP per capita remembers the enhancements for the innovation, human resources, and physical capital, market - skilled oriented climate with the strong government strategies and practices (Jhinghan, 2017). For the low pay and average - pay nations, GDP per capita increments on expanding the measure of physical capita per staff member, capital per laborer and the growth of ventures on the innovation as aptitudes and advanced education.

Principles of Economics - Question 5

Inflation can be estimated precisely by refreshing the basket of merchandise and ventures each year. At the point when a specific basket of products is distinguished, we can monitor the expense to purchase the specific basket. We can utilize the data to follow the price of the basket after some time whether the basket is more costly, or it is more affordable. It is significant and helpful to utilize a basket of products as opposed to utilizing a solitary product on the grounds that an ascent or fall in the cost of things won't be sufficient to give the data about the ascent and fall in cost in general (Hall, 2009). A basket contains numerous units of the merchandise that individuals purchase all the time and a couple of products that individuals do not buy often. The value level is constantly spoken to by the index number instead of the dollar estimation of merchandise. The pace of inflation is the pace of development of the value level. While estimating value level with a fixed basket of products, there will be an issue on quality and substitution bias. 

By refreshing the basket of merchandise once in exceptionally five years, the issues on estimating value levels with the fixed basket of products can be decreased at a specific level. The issues identified with substitution bias can be diminished to some degree by changing the bushel of merchandise after some time, yet they can't be completely decreased (Taylor et al., 2017). The inflation level can be estimated by the Consumer Price Index (CPI), which depends on the specific basket of products that the regular purchaser purchases.

References for Economics for Investment Decision Makers

Coyle, D. (2015). GDP: A Brief But Affectionate History - Revised and Expanded Edition. United Kingdom: Princeton University Press.

Dwivedi, D. N. P. (2012). Microeconomics - II. India: PEARSON EDUCATION INDIA.

Hall, R. E. (2009). Inflation: Causes and Effects. United States: University of Chicago Press.

Jamison, M. A. (2013). Industry Structure and Pricing: The New Rivalry in Infrastructure. United States: Springer US.

Jhinghan, M. L.(2016). Microeconomic Theory. New Delhi: Vrinda Publications

Jhinghan, M. L.(2017). Macroeconomic Theory. New Delhi: Vrinda Publications

Pettinger, T. (2017). Cracking Economics. United Kingdom: Octopus Books.

Piros, C. D. & Pinto, J. E. (2013). Economics for Investment Decision Makers: Micro, Macro, and International Economics. Germany: Wiley.

Taylor, T., Shapiro, D. & Greenlaw, S. A. (2017). Principles of Economics 2e. United States: OpenStax.

Textbook Equity Edition. (2014). Principles of Economics Volume 1 of 2. (n.p.): Lulu.com.

Tucker, I. B. (2010). Economics for Today. United States: Cengage Learning.

Viner, J. (2013). Cost Curves and Supply Curves. Austria: Springer Berlin Heidelberg.

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