Question;Unit 2. GB540;Discussion1;The law of demand states that a fall in the price of a good raises;the quantity demanded, and the increase in price leads to a decrease in;quantity demanded. The price elasticity of demand measures the responsiveness;of the quantity demanded to a change in price. Demand for a good is said to be;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 said to be 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.;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 good by buying more of the substitute goods and;less of the relatively more expensive good. 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) demands.;Explain;why the demand for the good or service provided by the organization you;work for is elastic or inelastic. How does this influence pricing;decisions?Provide;examples on how the availability of close substitutes affects price;elasticity of demand.Give;specific examples of necessities or luxuries, and explain how they affect;price elasticity of goods or services.Discussion 2;Externalities come about when individuals impose costs on or;provide benefits to others but do not consider those costs and benefits when;deciding how much to consume or produce. Thus externality is a cost or benefit;received by a person not involved in a market transaction, and therefore not;reflected in the market price of the commodity being transacted. There are two;types of externalities: positive externalities and negative externalities.;A positive externality exists when an individual or firm making;an economic decision does not receive the full benefit of the decision. In this;case, the social benefit is greater than the benefit that goes to the;individual or firm.;A negative externality occurs when an individual or firm making;a decision does not have to pay the full cost of the decision. If a good has a;negative externality, then the cost to society is greater than the cost;consumer is paying for it.;Both positive and negative externalities result in market;inefficiencies unless proper action is taken.;Describe;your understanding of externalities by providing an example of a positive;externality and a negative externality.Why do;positive and negative externalities lead to inefficiency in the market;economy?How can;externalities be addressed using the private sector to reduce market;distortions of externalities?What;government policies help deal with positive and negative externalities by;reducing inefficiency?Discussion 3;The role of governments in the economy is one of the most debated;issues in economics. Similarly, one of the most enduring debates of U.S.;economic history focuses on the role of government in the economy. On the one;hand, it is argued that government regulation of the 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.;Moreover, the causes of economic and financial crises have been;parts of the larger debate on the role of the government in the economy. Some;argue that the accumulation of incorrect policies and lack of effective;policies led to the recent and other economic and financial turmoil (crises).;Accordingly, the failures of the main entities that manage our economy, which;are the Congress, the executive branch of the Federal government represented by;the Treasury Department, and the Federal Reserve System, lead to economic and;financial crises. The other side claims that it?s the lack of regulations that;lead to economic and financial crises.;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?
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