• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Microeconomics. How is elasticity a useful concept for firms and government?Consider a local bus company. How (if at all) does the marginal cost of providing transport for each passenger vary according to the time of day?

Extracts from this document...

Introduction

Microeconomics Coursework 1. How is elasticity a useful concept for firms and government? Elasticity, which according to A.Neale and C.Haslam "Economics in a business context" is a term "used in economics to describe the relationship between a proportionate change in one variable and a proportionate change in a related variable". Plain-speaking it is the measure of how one aspect of a products make-up, be it the price, or supply of available substitutes, will affect another. Elasticity demonstrates the relationship one factor such as price has on another such as demand. It is a useful concept for firms because the main goal of any organisation is to maximise profits. A firm will not just increase the price of a product without investigating the possible effects on demand. Elasticity can be used by a firm to clear a surplus. It is a useful concept for Government because it is important that they know what to collect indirect taxes from. Petrol, cigarettes and alcohol are often targets for taxation, whereby the government can receive an income to spend on public services. These items have a low price elasticity of demand, that is the consumer will be less likely to buy another product should the price be changed. ...read more.

Middle

Elasticity helps both to achieve these goals. 2. Consider a local bus company. How (if at all) does the marginal cost of providing transport for each passenger vary according to the time of day? The marginal cost, which in definition is the change in total cost resulting from a change in output will possibly be affected at each time of day because of how many passengers one bus can take. At peak times when demand for buses is at its highest point the bus company may well want to lay on another bus. Therefore the marginal cost will affect the total cost because the firm will have to employ another driver and have the petrol costs of another bus. The marginal cost of running a bus from A to B will change extremely slightly due to the load exerted on the bus. But the difference between a bus carrying one person and fifty is not significantly high. Another way in which the marginal cost may vary is in the length of the journey. Assuming that during rush hour the bus will take twenty minutes instead of ten to reach its destination then the amount of petrol used will be higher. ...read more.

Conclusion

Its use is to create healthy competition in a market and benefit the consumer. The main government objectives are to protect producers income, create a minimum wage (through law or the so called 'invisible hand') and create a surplus. The classic case of where privatisation hasn't brought success is in the health sector. Waiting lists were supposedly going to fall, the level of service was set to rise and staff should receive company benefits as a result. However, the companies taking over from the government in running these firms found that they had many overheads to deal with and many investments in equipment required. It is easy for the government to set targets but if the company only has a certain amount of staff available (not just through attracting the staff but through the lack of qualified staff available) then they can only serve the public at a certain rate and to a certain standard. If the number of beds needed exceeds those in the hospital not everybody can be accommodated. The government thought that by privatising the industry it could wipe out the problems, but the problems were quite deep rooted and complex. The government needed firms who could invest money whilst the hospitals made a loss, which is unrealistic. - 1 - ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. what is economics

    the Equilibrium Position * Within a market, the position of equilibrium could change due to: o A change in demand, whereby the demand curve shifts to the right or left o A change in supply, whereby the supply curve shifts to the right or left o A more or less

  2. Is the Government to Blame for Higher Petrol Prices?

    It is also the main method of fuelling transportation globally, being used by aeroplanes, cars, trains and ships along with being used in many power stations. However over the long run as oil begins to run out being a finite resource and the oil price becomes unsustainably high, alternatives to Petrol are likely to be used e.g.

  1. To what extent do you consider monopolies to be in the public interest?

    Even though a monopolist can charge high prices to consumers to make abnormal profits, there are many reasons as to why a monopoly can be beneficial to the public.

  2. Using transport examples throughout, explain the impact of market structure on economic efficiency and ...

    There are also no or low barriers to entry; in reality there are always barriers to entry, however in the perfect competition is a theory and so no barriers to entry is a condition of this theory. Using real life examples however, such as the local coach travel market, there

  1. Economics Coursework

    including education, this wide influence is mainly due to the high level of practicality in his theory. Maslow believed everyone had the same needs which can be organised into a hierarchy system. The needs at the bottom are basic needs concerned with survival; these needs must be satisfied before someone can move to the next level.

  2. 'Although corporate pricing decisions are influenced by many different factors, fundamentally prices will reflect ...

    Below I have displayed (figure 1.0) what the demand curve of an individual firm in a competitive industry looks like graphically. The figure above shows the demand curve for an individual pocket calculator producer is such a small part of the total market that he or she cannot influence the price.

  1. The concept of external costs and benefits.

    The same can be said about the cars they buy, the perfumes they use. These are all examples of positive externalities. We do something to please others. Positive externalities are rarer then negative externalities. People don't want to be made responsable for the harm they cause others but will not give anything away for free.

  2. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    David Rae, head of convenience stores, said that 'Supermarkets sold lines at a loss to attract customers.' This appears to convey that lower prices are really just a 'disguise' and prices are bound to rise in the long run, once enough customers have been attracted.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work