02 Feb Read the Last Word piece,

GB540 Economics for Global Decision Makers

Unit 2 discussion

DQ1 Price Elasticity of Demand

It is highly recommended that you review the Seminar presentation located in the Seminar area before beginning the Discussion.

The law of demand states that a fall in the price of a product raises the quantity demanded for the product, whereas an increase in price leads to a decrease in quantity demanded for the product. The price elasticity of demand measures the extent of the responsiveness of the quantity demanded to a change in price. Demand for a product is elastic if the quantity demanded responds substantially to changes in the price, and the percentage change in quantity demanded is greater than the percentage change in price. Demand is inelastic if the quantity demanded responds only slightly to changes in the price, which indicates that the percentage in price is greater than the percentage in quantity demanded for a certain product.

However, the extent of responsiveness of quantity demanded to a change in price depends on the nature of a particular good or service in the market. The price elasticity of demand partly depends on the availability of close substitutes. When a large number of substitutes are available, consumers respond to a higher price of a product by buying more of the substitute the product and less of the relatively more expensive product. In addition, goods or services that are considered necessities tend to have less elastic (more inelastic) demand, whereas goods or services that are considered luxuries have more elastic (less inelastic) demand.

Explain why the demand for the good or service provided by a firm is elastic or inelastic. How does the elastic or inelastic demand influence pricing decisions by the firm to maximize profit? What are the impacts of elastic demand and inelastic demand on total revenue?

Provide examples on how the availability of close substitutes affects price elasticity of demand for a good or service.

Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

DQ2 Government Failures

For your main (initial) response, construct thoughtful and detailed responses to the Discussion. After your initial response, post at least two substantial responses to your classmates and instructor’s posts in order to earn full credit.

The role of a government in the market economy is one of the most debated issues in economics. Similarly, one of the most enduring debates on U.S. economic history focuses on the role of government in the economy. Some argue that government regulation of the U.S. economy is too little and too late. On the other hand, there is also a claim that the U.S. economy is no longer a free market due to too many regulations.

Read the Last Word piece, “Government Failure” in the News, in Chapter 5 in your textbook. Investigate the use of special-interest lobbyists and its connection with the government failures. The process of lobbying legislatures is itself becoming a big business. State legislatures are under the same kind of pressure from interest groups as the Senate and the House of Representatives.

What are the roles of government in the market economy? Based the current economic conditions, to what extent should the government intervene in the market economy?

What are the justifications given in favor of more government involvement in the market economy? What are the reasons given in favor of less government involvement in the market economy?

Provide an example to discuss how special interests can succeed in perpetuating policies that are opposed by the majority of voters because the costs of organizing and motivating groups to take political action increase with group’s size.