Advance Diploma Level

Management

[Author name]

Q1.
Scarcity means that people want more than is available. Scarcity limits us both as
individuals and as a society. As individuals, limited income (and time and ability) keep us
from doing and having all that we might like. As a society, limited resources (such as
manpower, machinery, and natural resources) fix a maximum on the amount of goods and
services that can be produced.
Scarcity requires choice. People must choose which of their desires they will satisfy and
which they will leave unsatisfied. When we, either as individuals or as a society, choose
more of something, scarcity forces us to take less of something else. Economics is
sometimes called the study of scarcity because economic activity would not exist if
scarcity did not force people to make choices.
When there is scarcity and choice, there are costs. That cost is define by opportunity cost.
The cost of any choice is the option or options that a person gives up. For example, if you
gave up the option of playing a computer game to read this text, the cost of reading this
text is the enjoyment you would have received playing the game. Most of economics is
based on the simple idea that people make choices by comparing the benefits of option A
with the benefits of option B (and all other options that are available) and choosing the
one with the highest benefit. Alternatively, one can view the cost of choosing option A as
the sacrifice involved in rejecting option B, and then say that one chooses option A when
the benefits of A outweigh the costs of choosing A (which are the benefits one loses when
one rejects option B).
Q2.
Four types of market participants
Household
Business
Government
Foreign
Two types of Markets as applicable
Product and factor
Households
All those people living under one roof are considered a household.
Households do two fundamental things vital to the economy.
1. Demand goods and services from product markets
2. Supply labor, capital, land, and entrepreneurial ability to resource markets.
Economists think of each household acting as a single decision-maker.
Householder: The key decision-maker in the household. Households have changed
considerably in economic history. Earliest households were totally self-sufficient. They
made what they consumed and consumed what they produced to a large extend.
Specialization took place within the household.

Government
A condition that arises when unrestrained operation of markets yields socially undesirable
results. In the case of market failure, intervention could improve society's overall welfare.
Goal of government
- Households maximize utility
- Firms maximize profits
- It might be said that government officials maximize the number of votes they will get in
the next election.
The Role of the Government
1. Establishing and Enforcing the Rules of the Game.
2. Promoting Competition
3. Regulating Natural Monopolies
4. Producing public goods.
Business
Business economics is the study of the financial issues and challenges faced by
corporations operating in a specified marketplace or economy. Business economics deals
with issues such as business organization, management, expansion and strategy. Studies
might include how and why corporations expand, the impact of entrepreneurs, the
interactions between corporations, and the role of governments in regulation.
Foreign
Comprises all commercial transactions (private and governmental, sales, investments,
logistics, and transportation) that take place between two or more regions, countries and
nations beyond their political boundaries. Usually, private companies undertake
transactions for profit; governments undertake them for profit and for political reasons.
The term "international business" refers to all those business activities which involve
cross-border transactions of goods, services, resources between two or more nations.
Transactions of economic resources include capital, skills, people etc. for international
production of physical goods and services such as finance, banking, insurance,
construction etc.
Factors and production, resources, or inputs are what is used in the production process
to produce outputthat is, finished goods and services. The amounts of the various inputs
used to determine the quantity of output according to a relationship is called the
production function. There are three basic resources or factors of production: land, labor
and capital. The factors are also frequently labeled "producer goods or services" to
distinguish them from the goods or services purchased by consumers, which are
frequently labeled "consumer goods". All three of these are required in combination at a
time to produce a commodity

Q3.
a). Controlling supply reduces the supply of drugs

If
Q1=50
Q2=30

P1=10
P2=20

Previous expenditure on drugs is

P1 x Q1
10 x 50= Rs 500

New expenditure on drug is

P2 xQ2
20 x30=Rs 600

Under the stick control Measure reduce the supply of drugs and prices pay on drugs goes
higher than previous and quantity reduce the previous. Since the demand curve is very
steep even through the price is goes up. People are willing to pay higher price on a small
amount of drugs than previous drugs increases than previous.
b). Under the education and awareness building measures to reduce demand

If

Q1=50
P1=20
Q2=30
P2=10
Previous expenditure on drug is
P1 xQ1
20 x50=Rs 1000

New expenditure on drug is

P2 x Q2
10 x 30= Rs 300

Total money spent on drugs decreases due to education and awareness building (previous
expenditure is higher than new expenditure).
Q4.
i.

To make consumers pay most of tax, place tax on good with steep demand.

Since demand for the good is relatively in elastic, the associated demand curve has
a steep slope.
The demand curve for the good is relatively in elastic, consumer end up absorbing
the majority of the tax incident, by paying the majority of the tax the difference
between the price paid by consumers after the tax (Pc) and price paid for the
tax(Po)time the new level of consumption Q1.
The effect on the demand for good due to the tax the drop in demand is small. Since
goods are relatively inelastic. Consumers are most likely to pay the tax with little
reduction in their consumption of goods.

ii.

To make consumer pay most of tax, place tax on goods with relatively flat supply.

 The supply curve for goods is relatively flat (elastic), consumer end up paying the
majority tax incidence.
The difference between price paid by consumer after the tax (Pc) and the price paid
before the tax (Po), times the new level of consumption, Q1.
iii.

To make producers pay most of tax, place tax on goods with steep supply.

The producers allocation to the tax is measured by the difference in (P-Pp).

Since the step supply curve, notice that majority of tax is absorbed by the producer.

iv.

To make producers pay most of tax, place tax on goods with relatively flat demand.

 For goods with a relatively elastic demand, the reduction in demand caused by a tax
is significant, and greater burden of the tax will fall on the producer.
The producer allocation to the tax is measured by the differences in prices received
after (Pp) and before (Po) the tax, time the new level of consumption, Q since
demand for goods is relatively elastic, notice that the majority of the tax is absorbed
by the producer and a smaller portion by the consumer.