ECONOMICS
Absolute and comparative advantages.
England has absolute advantages in producing scones (50 > 4), Scotland has absolute advantages in sweaters production (2 > 1). As for comparative advantages, England should be focused on scones production as well (alternative costs for 50 scones is only 1 sweater); Scotland has comparative advantages in sweaters production (alternative costs for 1 sweater is only 20 scones). So, for both absolute and comparative advantages, England should produce scones, Scotland – sweaters.
If England and Scotland decide to trade, Scotland will trade sweaters to England. It could be explained by theory of absolute and comparative advantages (Scotland is better in sweaters production in both version). So, as production of sweaters is more efficient in Scotland, it should focus on production of sweaters and trade it to England.
If a Scottish worker could produce only 1 sweater per hour, the trade between England and Scotland still be gain for both countries. It can be explained by the theory of comparative advantages (the alternative costs for sweater production are lower in Scotland: 40 < 50), so Scotland will trade sweaters to England as well.
Price elasticity of demand for heating oil is 0.2 in short run and 0.7 in long run.
If the price of heating oil will rise from $1.80 to $2.20 per gallon, the quantity of heated oil demanded will change in the next way:
At first, we should calculate the percentage of changes in price. The change is ((2.20 – 1.80)/1.80)*100% = 22%
As price elasticity of demand in short run is 0.2, than the quantity of heating oil will change for 0.2*22% = 4,4% (decrease)
As price elasticity of demand in long run is 0,7, than the quantity of heating oild will change for 0,7*22% = 15,4% (decrease)
The differences in elasticity in short and long run terms could be explained by the fact, that heating is quite a complicated process and it can take some time to change the source of heating (technology of heating). So, as in short term it cannot be changed, the elasticity is low. But in long run, such a possibility is higher, so as result, elasticity is higher.
If the aim is to revenue increase, the main factor is price elasticity of demand. If it is lower than 1, than the best solution is to increase the price of tickets. But if it is higher than 1, it is better to reduce the tickets’ price. That is the best strategy to increase the revenue.
It might be true because of trade. If the drought is local (in Kansas region), the supply of local grain decrease, but it is substituted by grain from other regions. That’s why the Kansas farmers get reduced sales. But if we look on global drought, there are no other ways to substitute the lost supply, so the price is increasing and sales are increasing too.
Boston Red Sox and Fenway Park.
The impact of $5 tax per ticket
Before the tax implementation, the situation on market was characterized by P (price) and Q (quantity of tickets sales). After the tax implementation, the supply curve moved left (with the same demand curve). The A zone – is consumer (fans) surplus
B zone – producer (Red Sox) surplus
C – fans’ tax burden
D – team’s tax burden. So, the result of tax implementation is that the quantity of tickets sold will reduce, and the tax will burden both team owners and fans.
