Economics Scenarios, Research Paper Example

Suggest how an economist would approach the problem of alcohol abuse. Provide two (2) possible solutions to this problem. Include the four (4) elements of the economic way of thinking in your analysis: 1) assumptions, 2) ceteris paribus (ignoring constant variables), 3 marginal benefit vs. cost, and 4) incentives.

Alcohol is not going to away for two reasons: a) Prohibition produced a counterculture which glorified the criminal life and increased the number of violent incidents and b) Alcoholic beverages consistently generate revenue in an increasingly-unstable economic climate. Given the assumption of the permanency of alcohol consumption in America and the concept of ceteris paribus, an economic analysis can safely ignore the negligible shifts in financials as some consumers become more health-conscious or experience a loss in income (O’Sullivan et al., pp. 6-13). However, beer and wine (which typically represent the lower ranges of alcohol per volume) comprised more than sixty percent of total alcohol consumption (“Economic cost and benefits”.) These two market areas bring in billions of dollars of revenue and tax earnings throughout the year and create relatively little demand for governmental policing and generate tax revenues and even tourism in industrial breweries, such as Annheuser-Busch.

Rather than ignoring the effects which excessive alcoholic consumption produces in its loyal customers, alcohol producers have a unique opportunity to make a positive difference and create a free, positive public relations still or two by donating funds for the rehabilitation of alcoholics. From a purely economic standpoint, alcohol producers could establish additional therapeutic centers, funneling the profit back into production. However, this would most likely produce a backlash, as the concept of the profiting off of the temptations which these companies make readily available will likely seem grotesque, so the recommended course of action would stop at providing additional funding for the centers and subtly advertising these contributions.

Analyze how prescription drugs affect the demand and supply of other products and services in this country.

Prescription drugs can have a variety of effects. They can create a dependency or codependency, they can heal or create more damage, they can slow effects or even euthanize. Despite the bad publicity which prescription drugs receive in legal circles particularly, Burns (2009) writes that the current highlights of biopharmaceutical applications outweigh the risks which have largely dominated the discussion of these drugs. These highlights include: a) an economic footprint throughout the US, b) high-value jobs with a positive ripple effect in the biomedical industries, c) tax revenue, d) job growth, e) macroeconomic impact, and f) research and development investments (pp. 3-4). Additionally, certain prescription drugs are developed to supplement- or be supplemented by- other drugs, creating a mutual profitability. For many individuals, the risks of ignoring their medications far outweigh the slim financial, physical, and emotional costs of maintaining their regimen, and the increasing availability of generic forms of prescription drugs is increasing the availability of these drugs and only decreasing the demand for the original prescription drug forms.

Formulate a reason why the elasticity of demand is an important consideration when analyzing the impact of a shift in supply and why the elasticity of supply is an important consideration when analyzing the impact of a shift in demand. Include at least one (1) example in each scenario.

Miller (2007) writes that a half-price decrease generates twice as much demand for a product. Inelastic demand is a rarer occurrence in which price and revenue decrease at a faster rate than the quantity of available products (pp. 520-521). Ideally, the unit elastic would continue in equal increments, providing a stability of price and demand with an elasticity of supply and demand. Most demand curves remain largely linear, and the increase in demand is equal to the cost of a single unit. When demand far outweighs the costs of production, the loss of a single unit creates an exponential loss for the total revenue. In emergent industries, a unit which experiences three times the demand of the supplies available values each unit at three times the price during this period. During the Civil War, the Confederacy values of paper money dropped so low that even the largest denominations were relatively worthless since they were not backed by gold, stores, or foreign investments.

The concept of elasticity basically centers on the expectation that economics has a give-and-take flex or fluctuation which develops naturally according to supply and demand. When supply increases and is made available to the public, demand decreases (O’Sullivan et al., pp. 77-87). Elasticity determines the price of diamonds and water with little regard to the regional shortages of water in North Africa, because (in general) water is an abundant and naturally-occurring resource. The supply and demand elasticity of oil, on the other hand, is generally more limited, because there are small pockets of the resource available throughout the world, but the largest deposits are centered upon the Middle East, an area which demands less of this product than the Western countries do. Despite these rising costs, serious attention is only recently being given to alternative fuels, because Americans tend to look to short-term solutions to the supply and demand problem, creating a lack of immediate demand for alternative fuels. This has not stopped many visionary companies from investing in measures to bring the alternatives to the public eye.

Provide two (2) examples of increasing-cost industries in your state and propose why they would have a positively sloped supply curve.

Stanley (2009) writes that Virginia dairy and poultry suppliers increased production to meet international demands and were soon blind-sighted by stricter federal regulations of food production and by a sudden increase in the cost of feed. To make any profit from this increased investment, these producers were required to first adjust to the cost of demands for feed, betting their financial stability upon their ability to market the product despite the regulatory changes. Poultry suppliers tended to be large-scale producers- better able to absorb the costs and finance their risks. Dairy suppliers, on the other hand, had fewer alternatives if they could not surmount these two obstacles; they also had less increasing cost because they generated a smaller amount of product.

In addition, the provision for animal husbandry and housing, medical care, land use, and water/irrigation and electricity increase with each additional animal, which in this instance represents a single unit of investment and a potential unit of revenue. Minor differences in the quality of the meat will generate different results, according to the animal’s diet and medical history, but a carefully-orchestrated farm monitors these elements closely. The larger producers may or may not be subject to greater animal health risks, depending on the disorder, disease, virus, etc. which the animals exhibit. Greater numbers tend to be in closer proximity, spreading non-genetic illnesses quicker. However, larger producers also tend to have a greater number of staff to monitor animal health and deal with these issues when they arise. This increases the likelihood that only a marginal profit will be produced and that the revenue will decrease the amount of total revenue and, by extension, the total cost invested in the next year’s production.

Suggest how, under certain conditions, a perfectly competitive market is economically efficient.

P.T. Barnum, the circus display master, said: “Always keep them wanting more”. Although this insight was not directed to financial and economic sectors, the advice suits the elasticity of supply and demand. When demand increases, companies are often too quick to inundate the market with their product, driving up prices in a short-sighted race to the finish line. Many producers also assume that this balance should be controlled largely by one company. In fact, the competition between companies increases the viability of the market- provided that they operate without impediment without securing a monopoly. Several factors influence a competitive market. A company’s average revenue (total revenue/ number of units sold) and marginal revenue (total revenue of each additional unit sold) average together to form a price which considers the ideal balance (Hubbard & O’Brien, 2009). In the example of the animal industries described in the above questions, the increased investment made by the producers represents an investment which is known as a sunk cost. The money was spent; it is irretrievable; it is as good as gone. Producers are often pressured to sell their products immediately, reducing the risks that sunk costs will not be returned. In the food industries, this is not an option. Immediacy increases the demand, but only as long as the supply has not exceeded national average consumption and typical excesses. Maintaining the balance creates long-term competitive equilibrium which ideally allows firms to enter and exit the market freely (Hubbard & O’Brien, 2009).

References

“Economic costs and benefits: IAS Factsheet.” Institute of Alcohol Studies. Web. Retrieved from < http://www.ias.org.uk/resources/factsheets/economic_costs_benefits.pdf>.

Burns, L. (March 2009). The Biopharmaceutical Sector’s Impact on the US Economy: Analysis at the National, State, and Local Levels. Archstone Consulting, LLC. Web. Retrieved from < http://www.archstoneconsulting.com/biopharmapdf/report.pdf>.

Hubbard, R.G., & O’Brien, A.P. (Dec. 2009) Microeconomics. 3rd ed. Prentice Hall. Print.

Miller, R. L. (2007). Economics Today: The Macro View. 14^th ed. Addison Wesley. Print.

O’Sullivan, Sheffrin, & Perez. (2011). Survey of Economics: Principles, Applications, and Tools. 5^th ed. Prentice Hall. Print.

Stanley, T. (Aug. 2009). Business Structure and Biology Make the Difference in Two Virginia Agricultural Studies. Virginia Tech online. Web. Retrieved from < http://pubs.ext.vt.edu/news/fbmu/2009/08/Article_4.html>.