1/Why Scarcity, Competition and Discrimination Are Inseparable

1/Why scarcity, competition and discrimination are inseparable?

Because a society we can get is limited by our productive resources. These resources include the

gifts of nature, human labor and ingenuity, and tools and equipment that we have produced.Our inability

to satisfy all our wants is called scarcity. Because our wants for goods and services exceed the productive

capacity of the resources used to produce these goods and services. So we have limited resources and

unlimites wants. Faced with scarcity, we must choose among the available alternatives. The choices that

we make depend on the incentives that we face. Because of our scarcity , so we need to give up

somethings in order to get other things. This lead the opportunity costs exist.If we achieved production

efficiency ,we need to give up to produce somethings.If we use different resources ,we can produce

different products.So it causes the price discrimination. This mean selling different units of a good or

service for different prices. So different firms sell the different procts at a different price. Therefore,

there is a market competition. If the price discrimination used by monopoly competition, it can lead to

higher profits.Because a monopoly is an industry that produces a goods or service for which no close

substitute exists and in which there is one supplier that is protected from competition by a barrier

preventing the entry of new firms.In a legal monopoly competition and entry is restricted by the

granting of a public franchise, government license, patent, or copyright. Also the firm can supply the

entire market at a lower price than two or more firms can. Therefore, the firms can use the limited

resources to produce the products without the competition with other competitors. So the scarcity,

competition and discrimination are inseparable.

2/ Discuss the view that we need not worry about the probable exhaustion of natural resources such as

oil because the price mechanism will ensure that these resources are effectively utilized.

Because of our unlimited wants for the goods and services, therefore the natural resources is not enough

for us to satisfy.But we need not worry about the probable exhaustion of natural resources. Because the

price mechanism will ensure that these resources are effectively utilized.

Many factors influence buying plans .One of them is price. The price can affect the quantity demanded

of the goods. Because the law of demand state that other things remaining the same, the higher the price

of a good, the smaller is the quantity demanded. And the lower the price of a good, the greater is the

quantity demanded.

Also, because there is limited resources , so we need to give up something in order to get other things.

Therefore , tit causes the opportunity costs exist. The marginal cost is the opportunity cost of producing

one more unit of a good or service. We cannot produce any more of any good without giving up

something that we value even more highly. If producer use the resources effectively,

producer must consider the marginal cost and marginal benefit. The marginal benefit is that a person

receives from consuming one more unit of a good or service. The producer will produce what number of

good or service depending onmarginal cost and marginal benefit. The producer will produce what

number of good and service which is lowest marginal cost and highest marginal benefit.

The marginal benefit will decrease gradually when the buyer consume one more unit of the product.

Therefore, the producer will not supply too many product and they can use the natural resources

effectively.

3/Evaluate the following statement:

“A firm if it is maximizing profits must produce at the level of MR=MC”

This statement is right. Because if the firm marginal revenue is greater than marginal cost. The extra

revenue from selling one more unit exceeds the extra cost. The firm should increase output to increase

output to increase the profit. If the firm’s marginal revenue is smaller than that ‘s marginal cost. The

extra revenue from selling one more unit is less than the extra cost. The firm should decrease output to

increase profit. It is because the marginal cost is decreased at low outputs .It eventually increases

because of the law of diminishing returns. The law of diminishing returns means that each

additional worker produces a successively smaller addition to output. More workers are required to

produce one additional unit of output, the cost of the additional output must eventually

increase. Therefore if the firm produce at the level of MR=MC. The economic profit is maximized.

4/ Explain how a short –run market supply curve for a competitive industry can be derived from the

firms’ production functions.

In the competitive industry, the short-run market supply curve can be derived from the firms’ production

Functions. There is many firms in a competitive industry. he short-run market which at least one input is

fixed and the quantity of the other inputs can be varied. So the short –run market have total fixed cost

and total variable cost. The firms’ production functions led the fixed inputs become the variable inputs.

For example , plants. The short-run markets’ fixed input is included in it. So a short-run market supply

curve for a competitive industry can be derived from the firms’ production functions.

5/Suppose that there is a single seller of petrol in a particular town. Suppose further that policy

makers, outraged by the prices being charged by the monopolist, impose a price ceiling . Will the profit maximizing

monopolist increase output? Explain your answer.

If the policy makers impose a price ceiling on the petrol, the profitmaximizing monopolist will not

increase the output. The price ceilings are regulations that make it illegal to charge a price higher than a

specified level .It sets below equilibrium prevents price from regulating the quantities supplied and

demanded. Imposing a price ceiling ,it causes the producer surplus. The quantity demanded is greater

than quantity supplied. It causes the shortage of petrol.

Also,the profit maximizing monopolist will not increase the output when the policy makers impose the

price ceiling.Because a monopoly is a firm that must sell each unit of its output for the same price. Their

marginal revenue is not same as the market price. A single seller of petrol ‘s marginal revenue is related

to the elasticity of demand for its good. The profit maximizing monopolist will never produce at an

output in the inelastic range of its demand curve. If the demand is inelastic, the firm cannot earn much

profit when they set the higher price of the goods. Therefore the price ceiling policy limited the supply of

petrol. It lets the firm charge a higher price when the firm produce a smaller quantity .And they can earn

a larger profit. Therefore , although the monopolists cannot set the price which is higher than the

equilibrium price when the price ceiling is imposed ,they can influences the price. Because there is a

barriers to entry in the monopoly industry. So they can charges a higher price .

If they increase the one more unit of output after imposing the price ceiling , the marginal revenue

become zero .So the profit maximizing monopolist will not increase the output.

6/ The Production Possibilities Frontier(Curve) is not theoretically important except that it can show us

the concept of opportunity cost, choice and scarcity in one single diagram.

The Production Possibilities Frontier is theoretically important. It illustrate the maximum quantity of two

goods that can be produced due to scarcity. Therefore this curve not only show us the concept of the

opportunity cost ,choice and scarcity in one single diagram, but also show the maximum quantity of

goods what can be produced. Because of the scarcity ,so we need to give up producing something in

order to produce the other things. When we make a choice ,we have a opportunity cost. This curve can show us how

many product should be produced by the producer ,so this let the producer to use the resources more

effectively.

7/Evaluate the following statement :

“If the Government imposes minimum wage legislation, the welfare of workers in Hong Kong would

fall.”

. If the government imposes the minimum wage law , it will increase the cost of hiring of labor. Because

a minimum wage law is a regulation that makes the hiring of labor below a specified wage illegal. So the

minimum wage is set above the equilibrium. Because of the imposing minimum wage law , the quantity

supplied exceed the quantity demanded. There fore it causes the unemployment. The government

employ less workers after imposing the minimum wage law. But the welfare of workers in Hong Kong

will not fall.