Economics: Post your doubts here (O + A level)

[Kuhan]

I teach economics, If anyone of you has any problem in this subject, you can ask here. I will be more than happy to help.

Hi there.
Do you mind explaining to me why in the case of elastic demand and inelastic supply, consumers gain more of the subsidy granted than producers?
Thank you very much in advance.

 

[Kuhan]

yes,basucally, the advantage of other systems are the disadvantages of mixed economy.
check the attachment

Hi there.
Do you mind explaining to me why in the case of elastic demand and inelastic supply, consumers gain more of the subsidy granted than producers?
Thank you very much in advance.

 

[Kuhan]

Hi there.
Do you mind explaining to me why in the case of elastic demand and inelastic supply, consumers gain more of the subsidy granted than producers?
Thank you very much in advance.

sorry but no

 

[Xenon]

Hi there.
Do you mind explaining to me why in the case of elastic demand and inelastic supply, consumers gain more of the subsidy granted than producers?
Thank you very much in advance.

you sure it is consumers who gain and not the producers
below shows how I reason these stuffs, if you apply elastic demand and inelastic supply, you'll see that it is the producers who benefit.
also see that if demand is elastic, the granting of subsidy will cause a relatively larger increase in consumption compared to the fall in price, in other words producers revenue will increase
but anyways do feel free to correct me if I am wrong!

 

[Kuhan]

you sure it is consumers who gain and not the producers
below shows how I reason these stuffs, if you apply elastic demand and inelastic supply, you'll see that it is the producers who benefit.
also see that if demand is elastic, the granting of subsidy will cause a relatively larger increase in consumption compared to the fall in price, in other words producers revenue will increase
but anyways do feel free to correct me if I am wrong!
View attachment 6122

Thank you very much for the reply.

Sorry, i did not realise that i typed the wrong thing.
Wanted to ask why in the case of elastic demand and inelastic supply, producers gain more of the subsidy granted than consumers.
Yes, i realise that through the diagram, it can be seen.
However, how do we explain the situation?
Why must producer gain more of a subsidy when the demand is elastic & supply is inelastic?

Thank you very much in advance once again.

 

[Xenon]

However, how do we explain the situation?

talk about the incident of the subsidy with the help of a diagram like I did in the picture above. The fact that the line YX will be larger than YZ in both cases shows that producers will benefit more than the customers.

 

[Xenon]

Thank you very much for the reply.
Yes but why must producers receive more ( leave aside the diagram ) ?
When demand is elastic ,
if consumers receive more subsidy (the percentage increase in quantity demanded will be greater than the percentage decrease in price due to subsidy) ,
then the producers will have a higher TR right ?

the elastic demand is relatively simple
now you know that the fall in price due to subsidy will cause a greater increase in quantity demand and as a result TR of producer will rise. This implies that producers even by absorbing most of the subsidy and passing smaller amount to the consumers, that smaller amount will be enough to increase their revenue. Hence they benefit more

now a suitable reason for inelastic supply is bit difficult for me to figure out, I'll get back to you to when I can find out something. In the meantime, if you can figure out a reason, do inform me!

 

[Kuhan]

the elastic demand is relatively simple
now you know that the fall in price due to subsidy will cause a greater increase in quantity demand and as a result TR of producer will rise. This implies that producers even by absorbing most of the subsidy and passing smaller amount to the consumers, that smaller amount will be enough to increase their revenue. Hence they benefit more

now a suitable reason for inelastic supply is bit difficult for me to figure out, I'll get back to you to when I can find out something. In the meantime, if you can figure out a reason, do inform me!

Thank you once again.
Ok, will do that, but i doubt i would be able to reason it, this doubt has been lingering around with me for some time.
Btw, regarding elastic demand, well, i get your point that even a small amount of subsidy when transferred to consumers would be able to generate higher TR, but in this case, if they transfer the whole amount of subsidy, the increase in TR will be greater, right? i mean lets say out of 0.10 dollars of subsidy, if the consumers gain 0.10, the increase in TR will be greater than for example, 0.05 being absorbed by producers (since this 0.05 dollars per unit will only be multiplied by the quantity which is demanded after consumers are granted with a 0.05 subsidy).
No?
i think i am missing/lacking some understanding here.
Thank you in advance for ur replies.
i must say that ur replies r very helpful.

 

[Xenon]

Thank you once again.
Ok, will do that, but i doubt i would be able to reason it, this doubt has been lingering around with me for some time.
Btw, regarding elastic demand, well, i get your point that even a small amount of subsidy when transferred to consumers would be able to generate higher TR, but in this case, if they transfer the whole amount of subsidy, the increase in TR will be greater, right? i mean lets say out of 0.10 dollars of subsidy, if the consumers gain 0.10, the increase in TR will be greater than for example, 0.05 being absorbed by producers (since this 0.05 dollars per unit will only be multiplied by the quantity which is demanded after consumers are granted with a 0.05 subsidy).
No?
i think i am missing/lacking some understanding here.
Thank you in advance for ur replies.
i must say that ur replies r very helpful.

how do you know for certain that the producers will earn more if they transfer all the subsidy... I believe you'll need to do some calculations to be sure of it
and then again the producers earn also from the subsidy from every unit... so say if the total unit sold is 100 and for each unit subsidy is 5 then they will receive 500 money unit alone from the subsidy. Again if each good is 10 money unit, then revenue from the sell will be 1000... so the producers will in total receive 1500

 

[Kuhan]

how do you know for certain that the producers will earn more if they transfer all the subsidy... I believe you'll need to do some calculations to be sure of it
and then again the producers earn also from the subsidy from every unit... so say if the total unit sold is 100 and for each unit subsidy is 5 then they will receive 500 money unit alone from the subsidy. Again if each good is 10 money unit, then revenue from the sell will be 1000... so the producers will in total receive 1500

Let us take this example.

Elastic demand : at the price of 4 , Qd is 20
5 , 10
6 , 6
7 , 4

elasticity of demand (PED) = 2

let us say the subsidy in total is 2 dollars per unit

if consumers absorb full subsidy, they will purchase 20 units (since they pay 4 dollars per unit)
but producers will gain 120 dollars (since Qd is 20, but the price they receive is 6 dollars )

if consumers absorb half the subsidy, they will purchase 10 units
but producers will gain 70 dollars (since Qd is 10, but the price they receive is 7 dollars)

although my latter instance shows equal share of subsidy, from these examples, i notice that producers gain more if consumers absorb the full amount of subsidy in the case of elastic demand

perhaps i have gotten something wrong here

hope you can correct my understanding

 

[Xenon]

Let us take this example.
Elastic demand : at the price of 4 , Qd is 20
5 , 10
6 , 6
7 , 4
elasticity of demand (PED) = 2
let us say the subsidy in total is 2 dollars per unit
if consumers absorb full subsidy, they will purchase 20 units (since they pay 4 dollars per unit)
but producers will gain 120 dollars (since Qd is 20, but the price they receive is 6 dollars )
if consumers absorb half the subsidy, they will purchase 10 units
but producers will gain 70 dollars (since Qd is 10, but the price they receive is 7 dollars)
although my latter instance shows equal share of subsidy, from these examples, i notice that producers gain more if consumers absorb the full amount of subsidy in the case of elastic demand
perhaps i have gotten something wrong here
hope you can correct my understanding

"but producers will gain 120 dollars"... I think this will be 80
okay maybe they can make more revenue, but what about profit... by default we assume that firms aim to maximize profit... increasing revenue only does not always lead to higher profit. Do you know about (im)perfect competition and the things about competition... maybe it'll help if you try to apply them here
AGAIN, we are saying that the producers benefit more at the equilibrium price...
and then about the transfer of all the subsidy or more to customers, I don't see how that will be possible diagrammatically without changing the demand curve.
your calculations might be correct but can you show it diagrammatically... if it is not possible using diagram, you're surely doing something wrong

now see, I'll give up with this topic at this point... you better consult with your teachers or other mentors (I'm a student myself) though I'm quiet sure what I said is kinda correct

 

[Kuhan]

"but producers will gain 120 dollars"... I think this will be 80
okay maybe they can make more revenue, but what about profit... by default we assume that firms aim to maximize profit... increasing revenue only does not always lead to higher profit. Do you know about (im)perfect competition and the things about competition... maybe it'll help if you try to apply them here
AGAIN, we are saying that the producers benefit more at the equilibrium price...
and then about the transfer of all the subsidy or more to customers, I don't see how that will be possible diagrammatically without changing the demand curve.
your calculations might be correct but can you show it diagrammatically... if it is not possible using diagram, you're surely doing something wrong

now see, I'll give up with this topic at this point... you better consult with your teachers or other mentors (I'm a student myself) though I'm quiet sure what I said is kinda correct

Hi again. Thank you very much.

Well, regarding the value (i think it should be 120, since when consumers receive 2 dollars of the subsidy ; whole amount, the price they pay will be 4, but the amount producers receive is still 6. no? so 20 x 6 = 120)
Yes, i realise that i may have assumed something wrong here, but i just can't find it
Surely the results by diagram is correct
Unfortunately, my explanations do not match the results via diagram
So i am unable to explain the situation correctly without diagrams
Ok then, thank you very much for ur replies so far.
Please do reply if you have anything else to comment on.

Thank you.

 

[smiles]

I teach economics, If anyone of you has any problem in this subject, you can ask here. I will be more than happy to help.

hello, i find it hard to study economics for my a levels. pls i really need to get an A in economics. i need ur help

 

[Xenon]

Hi there.
Sorry to trouble you again.
Just wanted to know if you know whether there are any website which provides answers for CIE's past year papers (older ones - 1990-2000), for Economics/Accounting/Mathematics.
Thank you.

no actually... such old questions are difficult to find... maybe you can search for old redspots

 

[smiles]

Re: Any body can ask any thing about ECONOMICS

eco of a levels too?

i av a little scare as regards to answering the theory aspect where we are asked to discuss or explain

 

[Asmi]

can anyone post the valid guess papers for economics 2012 may/june o levels

 

[Narcotic]

anyone, plz answer this question for me.
"what policies could a govt use in order to influence supply of a good?" 6 marks

 

[:: A^]

These might help!

http://www.xtremepapers.com/papers/...al O Level/Economics (2281)/2281_y14_sp_1.pdf
http://www.xtremepapers.com/papers/...al O Level/Economics (2281)/2281_y14_sp_2.pdf

Marking Schmes:
http://www.xtremepapers.com/papers/...al O Level/Economics (2281)/2281_y14_sm_1.pdf
http://www.xtremepapers.com/papers/...al O Level/Economics (2281)/2281_y14_sm_2.pdf

 

[mbon]

I teach economics, If anyone of you has any problem in this subject, you can ask here. I will be more than happy to help.

26 A government has low reserves of foreign currency. When would it be likely to consider a deficit on current account to be a serious problem?

1. A when the country is experiencing a period of high, sustained growth
2. B when the deficit alternates regularly with a surplus
3. C when the deficit exceeds the sum of errors and omissions in the balance of payments account
4. D when the level of international confidence in the country is low
   
   why choose D?? My friend and I have no idea..

 

[Meg]

I teach economics, If anyone of you has any problem in this subject, you can ask here. I will be more than happy to help.

Please guide me as to how to attempt the answers in order to attain maximum marks