Assessment Answers :Foundation of Microeconomics MECON1001

Foundation of Microeconomics 1
FOUNDATION OF MICROECONOMICS
Foundation of Microeconomics 2
Table of Contents …

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Foundation of Microeconomics 1
FOUNDATION OF MICROECONOMICS
Foundation of Microeconomics 2
Table of Contents
Introduction ………………………….. ………………………….. ………………………….. ………………………….. ….. 3
Concept 1: Opportunity Cost ………………………….. ………………………….. ………………………….. ………. 3
Concept 2: Negative Externality ………………………….. ………………………….. ………………………….. ….. 3
Concept 3: People respond to incentives ………………………….. ………………………….. …………………… 4
Concept 4: Demand Curve: a change in the number of buyers ………………………….. …………………. 5
Concept 5: Market Shortage ………………………….. ………………………….. ………………………….. ……….. 5
Conclusion ………………………….. ………………………….. ………………………….. ………………………….. …… 6
References ………………………….. ………………………….. ………………………….. ………………………….. ……. 7
Foundation of Microeconomics 3
Introduction
Economics is a special branch of social studies that uses science to understand the
decision -making of the business and consumer behavior . Using appropriate tools and techniques
economists try to logically rationalize the implication on the society arising from the changes in
behavioral patterns of both the parties. The ultimate objective is to attain efficiency given the
limited availability of the resources to seek an optimum solution.
Concept 1: Opportunity Cost
Opportunity Cost of a good is that cost that is given up when we choose to produce the
next best alternative available given the limited resources in an economy. It is one of the vital
concepts in economics that allows us to understand the concept of scarcity and choice. China has
been facing fres h spikes in covid -19 cases lately (Economics Times, 2022). The country has been
investing in healthcare expansion and introducing regular mandatory free testing to control the
transmission. The expenditure associated with this testing is expected to cost 1.8% of China’s
GDP clearly reflecting the opportunity cost. The additional government expenditure incurred to
tackle the pandemic has crowded out the other governmental spending on infrastructure
(Bloomberg, 2022).
Source: https://gulfnews.com/opinion/editorials/learning -to-live -with -covid -19 -1.87735397
Concept 2: Negative Externality
Negative Externality is referred to the external costs borne by a third part y when either
production or consumption of a product or a service takes place. The aviation industry accounts
for millions of tons of carbon dioxide emissions every year. This external cost element adds to
Foundation of Microeconomics 4
the private cost and pushes up the total cost to s ociety. This has been contributing to global
warming which is degrading the environment at a rapid pace resulting in serious climate change.
Apart from the environment, human health is also adversely affected which is reflected by low
life expectancy rates over the years regionally (Quadros, Snellen, & Dedoussi, 2020). Lately, the
international aviation industry has only managed to meet one of its 50 climate targets. The jet –
Zero strategy aims to tackle the challenges involved in maintaining the demand and
environmental sustainability. Apart from this a tax levy may discourage air travel and cause
lesser pollution thereby lesser negative externality.
Source: https://www.theguardian.com/environment/2022/may/10/just -one -of -50 -aviation –
industry -climate -targets -met -study -finds
Concept 3: People respond to incentives
Consumers are always subjected to choices and their decision -making is influence d by
external factors such as incentives and benefits. After Covid 19, the international tourism
industry hit low and suffered huge losses resulting in widespread unemployment including
shutting down of hotels and restaurants. However, lately , global tourism has started to grow and
make a quick turnaround. This has mainly been possible due to the efforts made by the
governments to promote safe traveling and maintain protocols . Incentives such as the issuance of
travel vouchers and cashback offe rs e specially by the Australian government have promoted
domestic tourism raising the income level of the country (Nhamo, Dube, & Chikodzi, 2020).
South Korea on the other hand is encouraging tourism by providing employees with subsidized
holiday programs where workers are entitled to 25% of the cost of holidaying . Global tourism is
expected to grow as a result of the introduction of these incentive programs.
Foundation of Microeconomics 5
Source: htt ps://www.cityam.com/global -travel -tourism -industry -grow -8-6tn -2022/
Concept 4: Demand Curve: a change in the number of buyers
When a steep rise in the number of covid patients was witnessed, it led to an acute
crisis in hospital beds. Many patients could n ot be admitted on time as there was a
shortage of vacant beds. As a solution to this major problem, post -care at home and
monitoring at home services were offered by hospitals to shorten the hospital stays so that
new and more critical patients could be ad mitted (Emanuel et al., 2020). This led to the
creation of demand for medical equipment which could be kept at the residences of the
patients such as blood pressure machines, thermometers, and oximeters . Consequently ,
the production of such medical products went up resulting in an increased number of
buyers. Overall, there has been a rapid rise in such medical supply services generated by
the rise in demand from the growing number of patients.
Source: https://medicalx press.com/news/2022 -05 -rapid -home -based -post -acute -options –
pandemic.html
Concept 5: Market Shortage
The price of crude oil and gas has become increasingly high and is seeming to show an
upward future trend. Distortions in the demand and supply are causing the disequilibrium in the
price levels. A shortage occurs when there is a gap between the market forces of demand and
supply and the demand exceeds the supply. Oil is one of the major necessities for all economies.
One of the reasons is that post -Covid eco nomies have started to function normally leading to a
gradual rise in the demand. Another reason for the shortage is originating due to the Russian –
Foundation of Microeconomics 6
Ukraine War as Russia is an exporter of Oil (Liadze, Macchiarelli, Lee, & Juanino, 2022). The
war has impacted the distribution channels and supply chains leading to shortages in the
countries of the buyers.
Source: https://www.usatoday.com/story/money/2022/04/20/gas -prices -may -rise –
again/7382587001/
Conclusion
The application of economics in real life events and scenarios makes the understanding
much simpler and interesting. The subject is interdisciplinary in nature as it has major linkages
from other subjects of science and arts. With an understanding of the l aws and principles, one
can have better understanding of the surroundings and world events.
Foundation of Microeconomics 7
Reference s
Bloomberg (2022). China’s Regular Covid Testing to Cost 1.8%of GDP Retrieved from:
https://www.bloomberg.com/news/articles/2022 -05 -06/china -s-regular -covid -testing -to-
cost -1-8-of -gdp -nomura -says
Emanuel, E. J., Persad, G., Upshur, R., Thome, B., Parker, M., Glickman, A., … & Phillips, J. P.
(2020). Fair allocation of scarce medical resources in the time of Covid -19. New England
Journal of Medicine , 382 (21), 2049 -2055.
Gulf News (2022) Learning to live with Covid -19 Retrieved from:
https://gulfnews.com/opinion/editorials/learning -to-live -with -covid -19 -1.87735397
Liadze, I., Macchiarelli, C., Mortimer -Lee, P., & Juanino, P. S. (2022). The economic cost s of
the Russia -Ukraine conflict. NIESR Policy Paper , 32 .
Macola (2022) Global travel and tourism industry could grow to $8.6 trillion in 2022 Retrieved
from https://www.cityam.com/global -travel -tourism -industry -grow -8-6tn -2022/
Medical Xpress (2022) Rapid rise in home -based post -acute care options during the pandemic
Retrieved from: https://medicalxpress.com/news/2022 -05 -rapid -home -based -post -acute –
options -pandemic.html
Nhamo, G., Dube, K., & Chikodzi, D. (2020). Tourism economic stimulus packages as a
res ponse to COVID -19. In Counting the cost of COVID -19 on the global tourism
industry (pp. 353 -374). Springer, Cham.
Foundation of Microeconomics 8
Quadros, F. D., Snellen, M., & Dedoussi, I. C. (2020). Regional sensitivities of air quality and
human health impacts to aviation emissions. Environmental Research Letters , 15 (10),
105013.
The Economics Times (2022) Beijing curbs public transport as COVID spreads in China
Retrieved from https://economictimes.indiatimes.com/topic/china -covid -cases
The Guardian (2022) Just one of 50 aviation indus try climate targets met, study finds Retrieved
from https://www.theguardian.com/environment/2022/may/10/just -one -of -50 -aviation –
industry -climate -targets -met -study -finds
USA Today (2022) Gas prices rising again? Experts warn of many possible outcomes as oil price
increased Retrieved from: https://www.usatodacom/story/money/2022/04/20/gas -prices –
may -rise -again/7382587001/

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