Answer in Microeconomics for Nelson #177910
Scarcity of economic resources force us to choose, to choose is to lose. Discuss this statement providing at least three economic examples.
Government price controls can short-circuit the market’s information transmission function. Discuss using appropriate figures.
Using appropriate figures and charts, explain why earning zero economic profit is different from earning zero accounting profit. What are the implications of these profits to a perfectly competitive firm?
Economic resources are scarce, and one must make economic decisions to manage them to meet human needs. There is a constant opportunity cost in making decisions since there is a limited amount of resources to satisfy unlimited wants. Goods and services are scarce because factors of production are scarce too. Examples of economic resources which are scarce include land, labor and water. There is a shortage of land for production. There is a shortage of labor in particular skilled areas like engineering and nursing. Climatic changes have led to a shortage of water used in production and human and animal consumption.
The government set maximum prices for specific goods to make them affordable. Government price controls can short-circuit the market’s information transmission function since it controls both demand and supply. Price control can lead to the production of inferior goods or even shortages. Price control undermines the integrity of the economic market.
Zero accounting profits take opportunity costs into account, while zero economic profit does not. Zero accounting profit implies that the perfectly competitive firm is making an economic loss, while zero economic profit implies the perfectly competitive firm is making economic profit.