Microeconomics Supply Has an Undeniable Impact Upon Essay

  • Length: 5 pages
  • Sources: 1
  • Subject: Sports - Drugs
  • Type: Essay
  • Paper: #38646962
  • Related Topic: Estate Tax, Suv, Bear

Excerpt from Essay :


Supply has an undeniable impact upon price. When supply goes down, price goes up. In this instance, a rapid decrease in supply has led to an increase in the price of lettuce. Unlike producers of other goods and services, farmers cannot always fine-tune their supply according to market demand, because of the impact of the weather upon their ability to produce. Farmers had already planted less lettuce, presumably based upon demand patterns from the year before. Yet demand levels for agricultural products from year-to-year are difficult to predict. For example, when the weather is warmer, people tend to eat more lettuce, even in the winter. Conversely, a scare about the safety of a particular type of produce, like spinach, can cause a rapid downturn in demand.

To make up for the decrease in supply due to a harsh cold snap and still ensure that their input costs are covered, farmers must raise prices. Consumers who eat lettuce may initially be willing to pay more for the product, given that people who eat fresh fruits and vegetables tend to be more affluent than those who do not. However, there are also many substitute goods for lettuce in the form of other fresh vegetables that can be eaten instead of lettuce, such as spinach. While in the short-term, consumption patterns may mean that consumers will pay higher prices, over the long-term consumers are often willing to shift their consumption patterns to lower-cost items with similar applications and benefits. It is relatively easy to substitute other goods for lettuce. This is in marked contrast to something such as gasoline for a car, which has no immediate, obvious sources of substitution in many areas of the country. Although it is possible to buy a small, hybrid vehicle to replace an SUV if the price of gasoline grows prohibitively high, replacing a car takes a much greater effort on the part of the consumer than buying a new kind of vegetable. And regarding consumption patterns of food, most consumers subjectively have a sense that there is a limit to how much they will pay for a specific food item, even if they have the income to afford it, unless they are convinced that it has substantial taste or health benefits. Americans are accustomed to paying a relatively small percentage of their income for food.

The rapid re-planting of the crop and the improvement of the weather suggests that within a month or so, the lettuce crop will have recovered. As supply increases to meet demand, eventually the price farmers are able to command for their crop will go down, and a new equilibrium of price and demand will be reached. Lettuce prices will likely be cheaper than they are at present. Also, as the weather grows warmer, there will be more sources for lettuce and other substitute goods, such as local farmer's markets and home gardens. However, this is still difficult to predict, given that 'food fads' and consumption trends can be extremely volatile, and a popularity of a new diet fad or food trend may cause consumption of lettuce to be sustained -- or the price of another substitute produce may be affected and influence the price of lettuce.

Part #2

Price elasticity of demand is a measurement of the change in the quantity demanded divided by the change in price. Given this data, it would be necessary to first discover the extent that demand changed relative to the price of alcohol. However, what is really being analyzed is income elasticity of demand relative to price. Income elasticity measures the demand for a good relative to a change in income for persons demanding that item. It is measured by the percentage change of goods demanded divided by the percentage change in income. During a recession, presumably the percentage change in income is negative, or decreasing. The incomes of the persons being studied at the state and the federal level would have to be calculated and divided by the decrease in consumption.

However, what base income to use would also have to be decided: the mean or the median income at the federal or at the state level. These numbers can differ because very low or very high incomes (particularly at the federal level) can cause the average to be 'skewed' relative to the average person who is likely to have lost his or her job as the result of a recession (high wage earner's incomes are less dependent upon employment and are more dependent upon assets, while low wage earners often did not have room for anything but necessities in their budget, anyway).

Alcohol consumption, however, is affected by many other factors besides income. Individuals who are addicted to alcohol regard alcohol as a necessity, and one of the signs of addiction is prioritizing consumption of alcohol over food. Individuals with a predisposition to abuse alcohol who lose their job during recessions may drink less expensive alcohol, but it is unlikely they will forego consumption entirely. Also, there may be a higher percentage of alcoholics who do not have jobs, which means that a recession will not significantly impact their consumption.

The marginal utility by the consumer perceived by consuming more alcohol is finite for most non-addicted individuals. A significant increase in income will not lead to a significant increase in alcohol consumption, although it may lead to a significant increase in quality consumed. Given that alcohol is not a necessity, during recessions, particularly recessions of long duration, it is likely that consumers will forego purchasing alcohol, versus purchasing gas and other items. Demand for alcohol is likely to be fairly elastic relative to income, except for certain 'problem' drinkers.

Do does this mean that the federal government should cavalierly ignore the need for alcohol abuse prevention programs during recessions? Not necessarily. Because, even though consumers may not as a whole be driven to drink more during recessions, not all subsets of consumers behave in the same manner. Individuals with genetic tendencies to abuse alcohol during stressful times may very well drink more. Alcoholics who use alcohol as a coping mechanism will certainly get 'deeper' into their illness, even if they may drink cheaper (and likely more potent) forms of alcohol. There is still a place for alcohol prevention programs during economic downturns.

Part #3

Unlike marriages or births, there is a limit to how much death can be timed. The 'cost' to the government of imposing the estate tax (besides the bureaucratic costs that ensue with the enforcement of any tax) is the loss of spending power and investing power of the inheritor of the estate. The 'cost' to the taxpayer is the presumed loss of revenue from the spending and investing power of the inheritor. However, the taxpayer loses the potential revenue garnered from the estate tax if the estate tax is waived.

The imposition of the estate tax is often justified by the ability-to-pay principle because individuals who inherit estates are substantially more affluent than the average American. (Most estates are not taxed, given that their value is below a specific amount). The estate tax is thus viewed as a progressive tax. Those who benefit from the economic system must pay more. The estate tax also has a leveling effect by decreasing the influence of inheritance upon a citizen's ability to succeed within the marketplace. Being born to a wealthy family confers an undeniable advantage to any citizen, in terms of his or her access to education, connections, and start-up capital for a new life. The estate tax levels the playing field by presumably transferring the assets of the extremely wealthy back to the government, where the money can be spent upon programs to assist the less fortunate. Additionally, because of the enhanced access to accountants and other financial professionals,…

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