Chapter one
Question 1
Increasing expenditure on defense decreases the money available for other public expenditure. Therefore, if the country is secure for business and investment growth the government should spent its revenue on productive expenditure. This is because defense expenditure does not generate additional income for a country. Thus, the opportunity cost of increased spending on defense is the income which could be generated if the revenue is invested in productive activities like agriculture and infrastructure development.
Question 5
The equilibrium price is set by the forces of demand and supply. This price is available in a market where there are many sellers and many buyers hence it is illogical for them to sit and decide the market. In addition, sellers will always want to get some profit upon selling their commodities and sell all their commodities. Therefore, a supply curve will establish itself to indicate various prices for various quantities. Likewise, buyers will wish to purchase different quantities of accommodate at various prices. Therefore, demand curve will establish itself and intersect with the supply curve to determine the equilibrium price. This price adjusts itself if any factor affects either supply or demand changes hence there is no need of buyers and sellers sitting down to determine the equilibrium price (Brux, & Cowen, n.d)
Chapter 13
Question 1
Characteristics of perfectly completive markets are no barriers of entering or exiting the market, no government interference, there are many buyers and sellers, there is adequate and freely available information about the market, and neither sellers nor buyers can collude to change market price. There are few competitive markets across the world because governments interfere with business activities in all countries and it is illogical for all parties to have adequate information on how a market operates (Brux, & Cowen, n.d) .
Question 4
Economies of scale are the benefits which a firm gets as it increases it size of operation e.g. decreased cost of production. Firms operating in large scale lower the price of their output to a level that discourages new firms from joining the market.
Exclusive franchise this is where government restricts entry of firms in market by allowing only one firm to operate. This restricts entry of new firms in the market
Control of essential raw material restricts new firms from joining the market by making the input unavailable to new firms willing to join the market.
Patents- this barrier occurs when inventor of a commodity is allowed to produce and sell a commodity without any competition thus restricting new firms from joining the market.
Product differentiation is making similar commodities different through pricing, advertising, branding e.t.c This affects the way consumers perceive a commodity and it becomes difficult to convince consumers to purchase a new commodity (different brand)serving the same commodity this prevents new firms from joining the market.
Price cutting is reducing the prices so much such that new firms find it unattractive and unprofitable to join the market.
References
Brux, Jacqueline M. & Cowen, Janna L. (n.d) Economic Issues and Policy, 5th edition. Mason, Ohio: South-Western Cengage Learning
