Introduction to Concept of Economics

The term economics is regarded as the social science that is concerned with describing as well as analyzing the production, distribution as well as consumption of the goods and services. The focus of economics is on behavior as well as interactions of the economic agent and the manner in which economies perform (De Jong, 2013). Economics is concerned with the condition wherein choices are being made in relation with the use of scarce resources, when to utilize them and the purpose of using. In other words economics is related with studying the choices in the situation of scarcity. In the present study the concept of economics have been discussed. The study includes application of the key economic concepts to organization and economic decision making. Further it covers the main issues faced by economic and business managers within 21 century. It makes evaluation of the instruments of microeconomic policy.

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Question 1


Output Fixed Cost Variable Cost Total Cost Average Total Cost Average Variable Cost Marginal Cost
0 10 0 10 0 0 0
1 10 5 15 15 5 5
2 10 15 25 12.5 7.5 10
3 10 30 40 13.3 10 15
4 10 50 60 15 12.5 20
5 10 75 85 17 15 25


Output Fixed Cost Variable Cost Total Cost Average Total Cost Average Variable Cost Marginal Cost Selling price Total sales Profit
0 10 0 10 0 0 0 16 0 0
1 10 5 15 15 5 5 16 16 1
2 10 15 25 12.5 7.5 10 16 32 7
3 10 30 40 13.3 10 15 16 48 8
4 10 50 60 15 12.5 20 16 64 4
5 10 75 85 17 15 25 16 80 -5

The firm is required to make production of 3 units in order to maximize its profit as at this the total profit is greater and after this it has started to get decline. With the production of such the firm can enhance its profitability in an effective manner.

Question 2

A) Expected effect of the flood on the price of bottled water

There is a greater impact of flood on the price of the bottled water. It has been assessed that in case of emergency situation like flood the demand for the bottled water would increase to a greater extent (Dumas, 2013). On the other hand there can be shortage in the supply as a reason of increase in the consumption of particular product. Thus it has been determined that bottled water price will increase as there is greater demand in the market.

B) Effects of an anti-price gouging law

This is considered as the law which presents that ceiling is being fixed at certain level of price. This demonstrates that after such level whether the market is monopoly ort not the seller cannot bring enhancement in the range of price. However in case the business is engaged in increasing the price of the necessity goods that such is considered illegal specially when the goods are necessity in nature (Gillespie, 2013). The major benefit that would be gained under this is by the customers. This is because with the increase in demand also the prices would not change as there is existence of ceiling beyond which there cannot be increase in the prices of the product. On the other hand the harm would be caused to seller as they cannot establish monopoly in situation of the increase in demand as they is range set for the product.

Question 3

A) Pricing decision of monopolist and deadweight loss of monopoly

Monopoly is one that is regarded as single seller within the market for a specific product or service. Under this there is existence of greater number of barriers that is preventing other entrants into the market. The goal of the monopoly is towards development of the pricing strategy towards maximizing the profit. The price of the market is assessed by the demand for the products or services (Hyclak, Johnes and Thornton, 2012). The monopoly needs to set highest prices as possible and wants to sell all the goods that are being manufactured. It is important that monopoly make determination of the correct output level for maximizing the profit. Monopoly possess the benefit over the other structure of market in making determination of the prices wherein the consumers cannot effectively carry out exchange of the products for comparable one from local provider. For instance, there is no comparable substitute in case of electricity.

Within economics the deadweight loss is referred to as the loss of economic efficiency that takes place when the equilibrium for the products and services is not attained or cannot be achieved (Kurzban and, 2013). There is presence of certain causes related with deadweight loss. One of them is associated with monopoly pricing, externalities, taxes or subsidies. The term deadweight loss is also referred as the excess burden of monopoly or taxation.

B) Explaining why Qantaslink to charge prices higher than competitive level on the monopoly route

As per the given scenario Qantaslink is the only provider of service between Sydney as well as Toowoomba's Brisbane West Wellcamp Airport. The Qantaslink can charge higher price as it is making sale in the market that is monopoly. This reflects that there is lack of sellers in the market and thus Qantaslink possess freedom to set its own prices. Thus this demonstrates that higher prices would be charged (Lin and Prince, 2013). The mining industry routes within Australia are also considered as one that possess monopoly. These are likely to increase the price to a significant level as they have monopoly in the market.

Question 4

In accordance with the case provided that several government across the globe have made implementation of heavy taxes on cigarettes and other tobacco products for the sake of reducing the number of smokers.

Tax can reduce sales of cigarettes

It has been assessed that there is greater impact of increase in tax on cigarettes in reducing the sales. With the enhancement in tax rates there is fall in the demand. Though this can have smaller impact as the demand is price inelastic. There is addiction among the people in relation to such and there is absence of close substitute in case of such product. It has been assessed that increase in taxes is considered as the sound policy that is executed by the government in comparison with the policy associated with advertising ban which has no impact in reducing the number of smokers (Mas-Colell, 2014). The major aim of decreasing the consumption of the cigarette through increasing the rate of taxes is to minimize the ill effects of cigarettes smoking among the smokers. This cannot alone result in minimizing the smokers but there can be some other factors imposed by the government regarding such.

Demand for cigarettes elastic or inelastic

In general terms it has been identified that when the prices of the product increase then the demand for the particular product declines to a greater extent. Such rules is not applicable in case of cigarette as it is continued to be in higher demand no matter how much there is increase in the prices. The demand for cigarettes is inelastic. The price elasticity related with demand measures the sensitivity of the consumer to changes in the prices. It is being stated that the demand for necessities is inelastic. However in case of luxurious product the demand is elastic. Along with this when there is presence of close substitute the demand is elastic. Cigarette is the exception to such (Schön and Konrad, 2012). Demand for such product is inelastic. The demand of the cigarette to a greater extent is dependent on the increase in the rate of taxes. With the increase in taxes the prices of the cigarettes packet would also enhance. If in situation the consumers determines that prices have increased too much then they would reduce the consumption of the cigarettes at least in the shoter course of time. Moreover it can be stated that consumers would continue to feed the addiction they possess by the means of looking at the substitutes.

Comparing tax to alternative policies like price floor or education campaign

There is presence of certain other alternative policies apart from taxes that is price floor or education campaign that can effect the demand of the cigarettes. It has assessed that with education campaign there can be increase or decrease in the number of smokers. This is because with this it is not necessary that ever person gets equally motivated. Thus such might or may not influence the demand of the cigarettes among the number of smokers. On the other hand it has been assessed that price floor is one that can be set below the free equilibrium price. A price floor is regarded as the lowest legal price at which the commodity can be sold. This is being used by the regulatory authority in order to enhance prevention of the prices from being getting too low (Summers, 2014). This can be effective in case of cigarettes as with this the prices of cigarettes cannot get much low thus the number of smokers can be reduced to certain extent. When making comparison of tax with both the factors the role of tax is much effective in reducing the number of smokers in comparison with price floor or education campaign as such there is uncertainty that such factors would lessen demand for the cigarettes in the market.

Effectiveness of cigarette tax as policy in reduction of number of smokers

Formulating cigarette tax policy is effective as it results in increasing the prices of cigarette and similarly reduces the number of smokers. Hence, government need to bring certain actions so that it helps in overcoming the issues faced by them in terms of raising the prices or imposing taxes on such products. It possess major benefits in terms of understanding the bad impact of cigarette smoking and thus raising the risk of health problems. Thus, due to increase in taxes results in decreasing the number of smokers or tobacco consumption. Increased taxes is considered as effective measure for reducing smoking among youth and thus it helps in saving various lives (Vasant, 2012). Also, such initiative of government helps in providing health benefits to consumers and thus results in decreasing the number of smokers. It also helps in improving health and raise revenues,. It is proven as a strategy to reduce smoking and extend lives in relation to safeguard people from death.


It can be concluded from the present study that economics is study of mankind the ordinary business of life. It has been inferred from the present study that demand for cigarettes in inelastic. Along with this assessment has been made that with the increase in tax for cigarettes its consumption among the smokers can be reduced to a significant level. Thus the ill effect can be minimized as well. There is greater importance for the government to impose various policies that reduce the number of smokers as such results increasing welfare among the society to a greater extent. On the other hand it has inferred that in case of flood the demand for the bottled water would rise. Further there will be increase in the price of the product as well. The major aim of decreasing the consumption of the cigarette through increasing the rate of taxes is to minimize the ill effects of cigarettes smoking among the smokers. This cannot alone result in minimizing the smokers but there can be some other factors imposed by the government regarding such.


  • De Jong, E., 2013. Culture and economics: on values, economics and international business. Routledge.
  • Dumas, B. A. B., 2013. Financial Securities: market equilibrium and pricing methods. Springer.
  • Gillespie, A., 2013. Business economics. Oxford University Press.
  • Hyclak, T., Johnes, G. and Thornton, R., 2012. Fundamentals of labor economics. Nelson Education.
  • Kurzban, R. and, 2013. An opportunity cost model of subjective effort and task performance. Behavioral and Brain Sciences. 36(06). pp.661-679.
  • Lin, C. Y. C. and Prince, L., 2013. Gasoline price volatility and the elasticity of demand for gasoline. Energy Economics. 38. pp.111-117.
  • Mas-Colell, A., 2014. Noncooperative approaches to the theory of perfect competition. Academic Press.
  • Schön, W. and Konrad, K.A. Eds., 2012. Fundamentals of international transfer pricing in law and economics (Vol. 1). Springer Science & Business Media.


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