Black one os the question, and the red one is the hint about how to answer the q
ID: 1116522 • Letter: B
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Black one os the question, and the red one is the hint about how to answer the question.
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4. The demand for resources.| a. Please thoroughly explain the detemmarts ofthe elasticity of resource demand. i. Discuss the following: 1.Ease ofresource substitutability 2. Elasticity ofproduct demand 3 Ratio ofresource cost to total cost b·Please explain how a firm would determine the optimal combination ofresources required to produce a givenlevel of output. Discuss 5. Government Regulation of business a. Regulation i. List and explain 4 reasons in favor offederal govemment regulationofbusiness. Include the /explain. economic consequences ofeach for the economy and youindividually ii. List and explain 4 reasons against federal govemmentregulation ofbusiness. Include the economic consequences ofeach for the economy and youindividually ii. You should be able to provide this. Might require a little research. b. Explain why the effectiveness ofantitrust laws changes through time i. Discuss the role ofpolitics and elections c. Explain Industrial Regulation(purpose, problems, and economic impacts) d. Explain Social Regulation (purpose, problems, and economic impacts) pretty straight forwardExplanation / Answer
4 a) Elasticity of Resource demand (ERD): It refers to how sensitive the demand for resource change is to change in the price of resources. It is calculated as:
ERD = % change in resource demand (Q)
% change in resource price (P)
If ERD > 1, elastic
If ERD < 1, inelastic
If ERD = 1, unit elastic
Determinants of ERD:
1) Ease of resource substitutability – if resources are more easily substituted, more elastic demand for the resource will be. For example, if price of cotton rises, then there are other materials that can be substituted like polyester etc. so changes in resource prices will lead to change in quantity demand of that resource.
2) Elasticity of product demand – if product demand is elastic, more elastic demand for the resource. If the resource accounts for a major percentage of the total product price, then the product elasticity will be very important.
3) Resource cost to total cost of the product – the greater the proportion of total product cost determined by a resource, the more elastic the demand for that resource. For example, if the resource accounts for a major proportion of the total product cost, the changes in the resource prices will cause large changes in the product price with corresponding changes in the demand for the product (it depends on the product elasticty).
b) . an important factor that affects ERD is the change in Marginal Product as a consequence of changes in the amount of resource used. for example, if a machine can cut cost of production of bags by 50%, then there will be greater demand for it than the machine that cut costs only by 20%.
To choose a optimal level of resources to produce a given level of output, a firm will follow LEAST-COST RULE that is costs are minimized where marginal product (MP) per dollar's worth of each resource is the same. MP is the additional product that can be produced when one extra unit of resource is added.. Least cost rule says
(MP of labour / price of labour ) = (MP of capital / price of capital)
When the last dollar spent on each resource gives the same MP
5. a .
Regulation: As the US economy became more industrialized and the US grew as economic power in 19th century, the federal government passed business laws.
i) Favor: Without government regulations, companies will cheat consumers. Without regulations, the economy will be in a mess.
Small firms will not be able to sustain their business and will be forced to exit the industry.
Big companies will take advantage; they will not be truthful or ethical when making their products. So regulations are important to keep things under control as it makes sure that companies use right kind of input in production.
If Government will not regulate businesses then the rich will keep getting richer and poor will stay poor. There will be more corruption and there will be unfair treatment to workers.
ii) Against: Regulations are too costly relative to their benefits. The costs are too complex and work as hidden tax. The taxes are more transparent and easy to measure compared to regulatory costs.
If regulations are tight, it will discourage competitive market forces to enter the market. In some cases, it forces firms to exit the market. If there is no competition, market will lose its discipline and deprive consumers of those competitive benefits which they get due to competition (like lower prices etc)
Government regulations are redundant. As long as market remains competitive, consumers are protected by the combination of market forces and the rule of law. Any kind of government regulation on top of that could become redundant and unnecessary as free market is self-regulatory.
Government regulations sometimes create unnecessary confusion in the market place. We don’t know what kind of regulations will be imposed and in what manner it will impact my enterprise.
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