Economics for Business and Management Table of contents Part A 3 Answer to Question 1 3 Answer to Question 2 4 Answer to Question 3 5 Part B 8 Answer to Question 3 8 References 12 Bibliography 12 Part A Answer to Question 1 A good investment climate is the defined as one which improves the socio-economic situation as a whole in the sense that not only the producers experience an increased profit margin, the buyers too are benefited out of a lowered price and efficient distribution…
Market forces generally are not controlled by any external forces and depend entirely upon the buying and selling traits of the producers and consumers. Scarce goods are associated with an inelastic supply so that a slight change in demand could result to a huge change in the price of the commodity. Moreover, their break-even price is set at a high level which automatically makes adjustments at the consumer base. Usually, scarce resources are found to be the ones associated with a high amount of demand which is why it is wrongful to bar buyers from consuming the same. In many cases the consumers are found to be prepared for paying a high price for acquiring a marginal amount of the commodity. If the distribution of such commodities are rationed and controlled by some external factor, the society is unlikely of reaching the optimum level of efficiency. In fact, in order to restore efficiency in market mechanisms, it is highly essential to incorporate competition in the field. The greater the competition is, higher will be the propensity among sellers to deduce ways through which they might be able to distribute a particular good at reasonable rates (Buigues & Rey, 2004, p. 183). However, maintaining such a stance in case of a scarce good might turn out to be detrimental for the society in the long run if the commodity is exhaustible in nature. Hence, some amount of restriction must be present to specify the level of price floor, which automatically curtails the aggregate market demand. On the other hand, if the commodity in question is not an exhaustible one, i.e., gets replenished over time, then an unrestricted market mechanism could be regarded as the best option to instil efficiency and eventually, a good investment climate in the economy. Scarcity of a good often leads to innovation and greater productivity in order to invent substitute commodities of the said item. A successful innovation is thus, often triggered by excess demand in the market. The substitute commodity is quite often associated with a lower price level so that even the poorer consumers are able to afford the same. Furthermore, the scarce good is deployed as little as possible which drives its supply schedule leftwards thus lowering the equilibrium market price. An effective innovation is likely to rouse demands which could be beneficial for the economy. Higher the prospects of innovation and productivity is, better are the employment prospects and thus, of output generation. Answer to Question 2 Although efficient allocation of resources could be accomplished best through the introduction of market system in the society, there are some exceptions where government intervention could turn out to be beneficial for the society as a whole. In situations where the commodity in question is a scarce good, it being exposed to market forces might lead to excessive deployment of the same. If the good is an exhaustible one like fossil fuels, the ultimate consequence could turn out to be quite damaging. Even if the commodity is inexhaustible in nature, too much use of the same could lead to exigent situations when the good is unavailable. In such situations, it is necessary for the government body to intervene in market ...
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