Expert answer:need help with discussion questions
Solved by verified expert:Hi i have posted questions for my discussion board. These questions has to have findings of the answer attached. This does not have to APA the formatting can be used on a word document with answer beneath the question with findings attached.
20171020141937discussion_questions.docx
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1. What is the difference between laissez-faire capitalism, the command system and the market
system?
The main difference between the laissez-faire capitalism, the command system and the market
system is based on the degree of control of the market and the financial decisions by the
government (Langran & Schnitzer, 2007).
In this sense, the economy is theoretically free from the intervention of the government in both the
laissez-faire capitalism and the market system, whereas in the command economic system it is the
government to decide what companies must produce and how much should the customers pay for
these products.
However, the laissez-faire capitalism emphasizes the right of the consumers and producers to
freely choose between the different choices available, whereas the market system is governed by
the competitiveness between the companies and the supply and demand for the different
products. From this point of view, the laissez-faire capitalism would provide both consumers and
producers with a higher freedom, where the choice of the consumers is limited exclusively by their
budget and the availability of products. In contrast, the production and prices in the market system
are controlled by the market itself, in the sense that the company has to have a close look at the
price of similar products offered by its competitors since charging a higher price will determine that
consumers buy the products from another company and hence decrease its sales.
Reference: Langran, R., & Schnitzer, M. (2007). Government, business, and the American economy.
Lanham: Rowman & Littlefield .
2. What is the origin of both consumer surplus and producer surplus? How do properly functioning
markets maximize consumer and producer surplus while optimally allocating resources?
The origin of both consumer and producer surplus can easily be understood by considering the
relationship between the supply and the demand for a given product. In this sense, consumer
surplus results when the consumer pays less than the maximum price that he is willing to pay for a
specific product, whereas producer surplus results when the producer receives a higher price than
the equilibrium price that would result from the available supply.
Taking the above into account, a properly functioning market will maximize both consumer and
producer surplus while optimally allocating resources by setting the price of the products being
sold at the equilibrium price where the supply of products exactly matches the demand for these
products (Heizer, Render & Munson, 2017). In this case, the maximum willingness to pay of the
consumer matches the minimum price set by the producers. Furthermore, by producing the
quantity required to satisfy the demand of customers, the producer saves resources and is able of
allocating the excess resources for the production of alternative goods.
Reference: Heizer, J., Render, B., & Munson, C. (2017). Operations management: sustainability and
supply chain management. Boston: Pearson.
3. How can the government’s power to coerce (influence economic behavior) be economically
beneficial?
The government’s power to coerce is economically beneficial since it acts as regulating body by
correcting the different market failures resulting from either an overproduction or an
overconsumption (Heizer, Render & Munson, 2017). In this sense, both overproduction and
overconsumption result in an inefficient allocation of resources, since either they are lost in the
production of goods that will not be consumed due to the lower demand or they are not enough to
satisfy the demand for the specific product.
Some ways in which the government can exert this coercive power are through the introduction of
new taxes and/or tariffs and by the modification of quotas on either imported or exported
products. For instance, the government can introduce a quota on imported products to protect the
domestic industries or ask for the reduction of a quota by a foreign government if the objective is
to increase the exportation of the overproduced goods to a foreign market.
Reference: Heizer, J., Render, B., & Munson, C. (2017). Operations management: sustainability and
supply chain management. Boston: Pearson.
4. What is the usefulness of the total revenue test for price elasticity of demand?
The company can maximize its revenue by analyzing the price elasticity of demand. Hence, if a
product is elastic, the company should be very cautious to a small variation of the price, as this
would have a significant impact on the demand for products and hence on the total revenue as the
number of goods sold is dramatically changed (Heizer, Render & Munson, 2017).
Taking the above into account, the total revenue test is extremely useful for the company when
trying to assess the price elasticity of demand. This test consists on evaluating the variation of the
total revenue resulting from a slight variation in the product’s price. Thus, it serves to evaluate how
elastic or inelastic demand is to small variations in the price of the product being sold. In this
regard, the price of the product will be elastic if a small variation of the price results in a big
variation of the total revenue due to the variation in the demand. In contrast, it will be inelastic if a
small variation of the price of the product doesn’t significantly modify the total revenue as the
demand would remain nearly constant.
Reference: Heizer, J., Render, B., & Munson, C. (2017). Operations management: sustainability and
supply chain management. Boston: Pearson.
5. What are the factors that affect price elasticity of demand and price elasticity of supply? What
are some applications of each?
Some of the factors that may affect price elasticity of demand (Heizer, Render & Munson, 2017)
are:
• The existence of substitute products, since the consumer may be willing to purchase the
substitute rather than the product if it is cheaper;
• The nature of the commodity, since demand will be higher for goods that are considered
essential or necessary than for those considered a luxury;
• The income level, as it determines the available budget that consumers can spend on the
purchase of new products;
• The price and promotion strategies, since a lower price will generally increase the demand of
the product since consumers will be able of purchasing a higher quantity. Similarly, the
existence of a promotion would result in a higher demand as the consumer perceives the
product is cheaper than normally.
On the other hand, factors affecting the price elasticity of supply (Heizer, Render & Munson, 2017)
include:
• The nature of the industry, the good or the environmental constraints, since they will
determine the production costs
•
•
The availability of multiple suppliers, which would result in a higher availability of the necessary
resources to produce the good and hence increase the available supply
The willingness of producers to take certain risks, as they might believe that the risk is worth
taking into account the expected benefit from sales and hence increase production of the good.
Reference: Heizer, J., Render, B., & Munson, C. (2017). Operations management: sustainability and
supply chain management. Boston: Pearson.
6. Why is Federal Reserve independence important?
The Federal Reserve needs to keep its political independence because it enables it to accurately
monitor and solve possible financial problems by focusing exclusively on the economy. By doing so,
it is expected that the Federal Reserve selects the necessary action plan to efficiently respond to
inflation outcomes without compromising future economic growth in the country as could have
happened if such decisions were left to non-experienced policymakers (The Federal Reserve, 2017).
Furthermore, by being independent from any political influence, the Federal Reserve ensures that a
stable financial policy is maintained regardless of the elected government, hence providing
companies with a higher economic security than the one that would be present if left to the
government, which would probably change it dramatically when a new government is being
elected.
Overall, the independence of the Federal Reserve from any political influence ensures a higher
price stability, promotes a high employment rate and limits the long-term interest rate, hence
providing the ideal environment for a sustainable and consistent economic growth.
Reference: The Federal Reserve. (2017, March 1). Why is it important to separate Federal Reserve
monetary policy decisions from political influence? Retrieved October 20, 2017, from
https://www.federalreserve.gov/faqs/why-is-it-important-to-separate-federal-reserve-monetarypolicy-decisions-from-political-influence.htm
7. What are the components of the US money supply?
The components of the US money supply, that are considered by the Federal Reserve to evaluate
the total money available in the country at a given moment, include:
• Bank accounts
• Available currency
• Demand deposits in commercial banks
• Savings deposits
• Small-time deposits
• Retail money funds
• Large-time deposits
• Institutional money funds
These components are classified into different levels, ranging from the basic and narrower level
(M0 to the higher level and that includes all the different components of the money supply (M3).
The amount of money supply is controlled by the Federal Reserve, which increases or decreases the
interest rates depending on whether it is necessary to increase or decrease the available money
supply in a given moment, hence preventing inflation from too much money being available.
The Federal Reserve publishes regularly the amount of money allocated to each of these
components (the Federal Reserve, 2017).
Reference: The Federal Reserve. (2017, October 19). Money Stock and Debt Measures. Retrieved
October 20, 2017, from https://www.federalreserve.gov/releases/h6/current/default.htm
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