Final Assignment (Microeconomics)
Consumer goods are products purchased to meet personal needs of consumers, family and household consumption. Consumer products with regard to the nature of consumption (the degree of durability) can be durable goods (i.e. used for a long time (cars, refrigerators, cell phones, furniture, TV sets)); and non-durable goods (i.e. consumed immediately (bread, cigarettes, drinks) or in divided doses (soap, toothpaste, washing powder), including disposable goods (once consumed) and services (the object of sale in the form of actions, benefits or satisfaction)) (Krugman and Wells, 2012).
Consumer goods cannot be used for industrial production, since they do not have the intrinsic properties of manufactured goods. In case of use of consumer goods in the industrial (professional) purpose, they fail (break) before the required lifetime and, in this case, the manufacturer assumes no warranty to the consumer. Consumer goods include food, clothing, shoes and other goods (home appliances, cars, motorcycles, etc.) (Krugman and Wells, 2012).
Identify two significant changes in the sales of video game software over the period shown by the data.
Within 2000-2011 the most important changes in the sales of video games software related to the age compression. It means the tendency of kids developing over play phases quicker than they did previously. Kids prefer to grow to more difficult toys at a higher speed, especially girls. Due to the existence of such trend, there is an obvious modification from old-fashioned toys and competitions to video games. In order to remain profitable and modern, well-known old-fashioned toys and games producers have been searching for increasing their activities and product ranges in the direction of video games.
Another change concerns the preferences of kids aged 8-12. They face much wider entertainment and media choices. Children differ by a great zest for life, inner poise, constant aspiration to active practice and less interest in traditional toys. Emotions play an important role in the psyche of that ages; it is subject to the behavior of children. Toy companies should be more specific in targeting such audience.
With the help of the information in the text and a supply and demand diagram, explain how the growth in the sales of video games may have affected the market for traditional toys such as action figures.
The law of demand shows the relationship between prices and the quantity of goods and services that can be purchased for each of these prices. Ceteris paribus it will be able to sell more goods at a low price than at high one. The demand curve shows that there is inversely proportion between the price and the quantity. The higher the price is, the less the goods at that price can be bought. The increase in the number of goods on sale causes a decrease in the price for it. The supply law means the increase in the volume of supply of goods with an increase in prices and decrease – at lower prices (Mankiw, 2014).
If the goods have goods-substitutes, the demand for the product tends to be elastic. The goods-substitutes are a pair of goods at higher prices on the one of which there is growth of demand on other items. Traditional toys and video games are substitute goods. The emergence of substitute products or the reduction of their price reduces supply of the conjugate product. Concerning the demand, in case the price on traditional toys increases, their demand will be lower and the movement will be seen along the curve, while the demand for video games will increase shifting the curve to the right, Figure 1 (Mankiw, 2014).
P Traditional toys P Video games
P2
P1
D D1 D2
Q2 Q1 Q Q
Figure 1. Interaction of goods-substitutes’ markets
Many of the video games aimed at the “tween” market are bad for children. In any case, even when they are not bad, children spend far too much time playing video games and not enough time playing outdoor games. Discuss how economics would distinguish between private costs of playing the games and social costs of playing the games. Explain how any difference between private and social costs can be addressed by public policy.
The problem of social costs is associated with externalities (external effects). They arise when the economic activity of one individual (or company) causes the result, favorable or harmful to another, it is nothing to do with the activity of the individual (or company). Private costs of activities and the associated private benefits determine the optimal scale of production. If not take into account the external effects, the scale of operations can be too large or too small from the point of view of the social optimum (Krugman and Wells, 2012).
As it was said playing video games affects kids negatively, especially their health, as they spend less time outdoors. Computer games can cause psychological dependence. They are especially dangerous for school children and young people with more fragile psyche. Thus, Pigou recommended neutralizing negative externalities (social costs) by taxation of companies.
According to Pigou, for each product produced it is necessary to follow the condition that the marginal social benefit, which reflects the amount that all people want to pay for all the benefits of the additional unit, is equal to marginal social costs, i.e. the amount that people would be willing to pay for the alternative use of resources. In cases where the marginal social benefit exceeds the marginal private benefit, the government should subsidize the production of this product. When the marginal social costs exceed marginal private cost, the government should tax the economic activity associated with additional social costs to private costs and the price of goods would then reflect these costs. In general, the maximization of social welfare, according to Pigou, implies not only a progressive income taxation system, but also the measurement of externalities and the organization of the redistribution of funds via the state budget mechanism (Mankiw, 2014).
References
Krugman, P. and Wells, R. (2012). Microeconomics, 3rd ed. New York: Worth Publishers.
Mankiw, N. G. (2014). Principles of Microeconomics, 7th ed. Boston: South-Western College Pub.
