The Economist Approach
To an economist, the problem of alcohol abuse is viewed as an externality in both consumption and production. The value to consumers is greater than the value to society. Alcohol consumption is linked to many social problems, and addressing these problems diverts a significant amount of resources that could have been used in other productive activities. The two potential solutions include the use of taxes or Pigouvian regulations. These will help to raise the cost (price) of alcohol consumption through increased taxes and reduced availability. The second solution relates to imposing tariffs on producers involved in the ...view middle of the document...
On the other hand, demand is said to be inelastic when an increase in price of a product or service does not significantly reduce the quantity demanded. Demand elasticity is a significant factor in analyzing the effects arising from shifts in supply. For instance, when the demand for a given good or service is inelastic, an increase in tax entirely falls on the consumer. Suppliers react to the increased tax by increasing the price of the product, and the demand remains unchanged. On the other hand, when demand is inelastic, in a situation where a product or service has alternative purchases, the suppliers will incur the entire tax burden because increasing the price will result in a decrease in demand (Lipsey & Courant, 2011).
Significance of Elasticity of Supply in Analyzing the Impact of a Shift in Demand
Price elasticity of supply measures the degree of responsiveness of quantity supplied to changes in prices holding other factors constant. Elasticity of supply is of significance in analyzing the impacts of demand shifts (Lipsey & Courant, 2011). For example, if the demand for rental houses increases, the economy will face a shortage of rental apartments at the original price. Consequently, rental prices will increase. The increased demand pushes prices up, implying that suppliers respond to price increases by increasing supply.
Examples of Increasing-Cost Industries and a Preposition of Why They Would Have a Positively Slopped Supply Curve
The increasing cost industry represents a perfectly competitive industry that has a positively sloped supply curve. This can happen because either the industry`s expansion increases the costs of production and prices for factor inputs (diseconomies of scale) or because of a shortage in the factor inputs. For instance, the increase in demand within the computer industry implies that consumers are willing to pay a higher price. Existing companies in the...