Economics for managers questions and an Essay
A newspaper article points out that the price of economics textbooks is up by 10% this year over last year, yet sales are higher this year. The author claims that these figures show that the law of demand does not apply to textbooks. What two mistakes has the author made in interpreting the law of demand? State the law of demand: All other things being equal, the higher the price of a commodity, the lower the quantity demanded, and vice versa. The law of demand basically states that demand curves are downward sloping. The first mistake is that the author ignored the coteries papyrus assumption.
This assumption is the main condition under which the law of demand operates. According to the law as stated above, when the conditions of demand (other factors affecting demand) such as income, prices of other related commodities, tastes and preferences change in a particular period, an increase in the price of a commodity may not necessarily result in lower quantities demanded of the commodity, and vice versa. Secondly, the author failed to acknowledge the fact that the law of demand only establishes a relationship between price and quantity demanded at a given time period, say a
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The author add a mistake by comparing the sales and prices between two different periods. 1 . The Government of Ghana concerned about excessive imports, placed an excise tax of 10 cedes per pound on imported items such as rice. Use the supply and demand model and the concept of elasticity to examine how this will affect price received by sellers, and the price paid by buyers, and the amount of rice. Assume price inelastic for rice. State the general effect of excise taxes on commodity prices: The imposition of the excise tax means that the price per unit of the commodity (in this case rice) would go p by the amount of the excise tax.
Graphically demonstrate equilibrium before the excise tax and after the excise tax. Show the share of tax burden on the buyers and that on sellers. Effect on the amount received by sellers: With the excise tax, sellers would receive the rice at an increased price than previously; though the price increase for sellers is less than that of buyers because the product (rice) is price inelastic. Effect on amount paid by buyers: Assuming price inelastic for rice, then a higher proportion of the tax could be conveniently transferred to the consumers in he form of higher prices; hence consumers would receive the rice at higher prices than before.
Effect on the amount of rice: The amount of rice would slightly reduce (but in a smaller magnitude compared to the price increase) under the assumption of price inelastic for rice. 2. Assume that the market equilibrium quantity and price in the Ghanaian petrol market is 50 gallons of petrol per month at the price of 3. 50 cedes per gallon respectively. However, the Government has recently imposed a price ceiling of 2. 00 cedes on a gallon effective immediately. Employ the concept of demand and supply to economics for managers questions and an By aggie consumer will be willing to pay a price higher than the 1. 0 cedes to get additional units of the petrol. Briefly describe what happens at equilibrium: At equilibrium, quantity demanded by buyers equals the quantity supplied by sellers, hence there is no surplus or deficit to cause prices to change in the market. Describe what happens in the market when government imposes price ceiling: The imposition of price ceiling brings disequilibrium such that demand exceeds supply, since buyers will be willing to arches more and sellers will be willing to sell less at the lower price fixed by the government.
Illustrate this scenario graphically Demonstrate that the consumer would be willing to pay a price higher than the ceiling imposed by the government: Since the price ceiling results in excess demand over supply (shortage) in the market, consumers would compete for the limited supply in the market by offering higher prices on the black market order to get petrol. 3. Experienced Economists know that economic forecasting is fraught with uncertainty. When Chemists or Physicists run experiments, they have carefully enthroned laboratory environments.
Economists enjoy no such luxuries; they make assumptions based on volatile economic and political conditions subject to random and violet shocks. Notwithstanding these problems discuss the various qualitative methods of business forecasting. Provide a brief discussion of business forecasting: Generally, forecasting involves prediction, projection, or estimate of some future activity, event, or occurrence. When this pertains to business activity, it is referred to as business forecasting.
Business forecasting methods are used to determine he future development or success of a business in regards to its sales, profits, and expenses. Briefly discuss the differences between qualitative and quantitative forecasting methods: Qualitative methods forecasting methods are based on judgments, opinions, intuition, emotions, or personal experiences and are subjective in nature. They do not rely on any rigorous mathematical computations. Quantitative methods forecasting methods on the other hand are based on mathematical (quantitative) models, and are objective in nature.
They rely heavily on mathematical amputations. A brief on the strengths and shortfalls of qualitative methods of business forecasting:Qualitative models have generally been successful with short- term predictions, where the scope of the forecast is limited. Qualitative forecasts can be thought of as expert-driven, in that they depend on market mavens or the market as a whole to weigh in with an informed consensus. Qualitative models can be useful in predicting the short-term success of companies, products and services, but meets limitations due to its reliance on opinion over measurable data.
These outstanding, the qualitative method has certain inherent weaknesses such as anchoring events and selective perception. Anchoring events mean that forecasters allow recent events to influence perceptions about future events. Selective perception means that forecasters ignore relevant information that may conflict with their view of how the future would unfold. Research: This entails polling a large number of people on a specific product or service to fairly predict how many people will buy or use it when it is launched into the market.
This method basically asks consumers about a new product and determining which of those consumers would actually purchase that new product. This method is implemented through a series of polls to potential customers. This method is sometimes combined with the Delphi Method of asking experts for their opinions of new products or services, and the likelihood of those products selling to potential customers. Delphi Method: This method involves asking field experts for general opinions and then compiling them into a forecast. With this method the experts give their opinion on the likelihood of the products selling to potential customers.