When economists refer to the opportunity cost of a resource, they mean the

value of the next-highest-valued alternative use of that resource. If, for example,
you spend time and money going to a movie, you cannot spend that time at home
reading a book, and you cannot spend the money on something else.

Q1.

The world has limited resources or limited factors of production (labor, capital, land
and
entrepreneurship)

These limited resources are met with the unlimited wants of all societies (we all
want to
consume these resources to the max but there is not enough to go around)

This results in the economic problem of scarcity (meaning short in supply) and it is
because
of this problem of scarcity that the rational man (economic agent) is forced to make
a choice.
We have Rs150.00 (limited resources) that we can spend on either ice cream or
pop-corn
(unlimited wants). We cannot have both. So we are forced to make a choices. The
same
applies to the world at a larger economic scale with regards to the factors of
production and
how these resources can be employed to produce output .E.g. we can farm the land,
or mine
it.

Making a choice means that you have to face an opportunity cost. That is, by
choosing the
ice cream in the above example, we are sacrificing our ability to consume pop-corn.
Hence
pop-corn are our opportunity cost of buying ice cream with your limited resources of
Rs150.00. Opportunity cost is the second best alternative forgone by making a
choice.

Q2.

Four types of market participants

Household

Business

Government

Foreign

Two types of Markets as applicable

Product and factor

Households

All those people living under one roof are considered a household.

Households do two fundamental things vital to the economy.

1. Demand goods and services from product markets

2. Supply labor, capital, land, and entrepreneurial ability to resource markets.

Economists think of each household acting as a single decision-maker.

Householder: The key decision-maker in the household. Households have changed

considerably in economic history. Earliest households were totally self-sufficient.
They
made what they consumed and consumed what they produced to a large extend.
Specialization took place within the household.

Government

A condition that arises when unrestrained operation of markets yields socially

undesirable
results. In the case of market failure, intervention could improve society's overall
welfare.

Goal of government

- Households maximize utility

- Firms maximize profits

- It might be said that government officials maximize the number of votes they will
get in the next election.

The Role of the Government

1. Establishing and Enforcing the Rules of the Game.

2. Promoting Competition

3. Regulating Natural Monopolies

4. Producing public goods.

Business

Business economics is the study of the financial issues and challenges faced by
corporations operating in a specified marketplace or economy.
Business economics deals with issues such as business organization, management,
expansion and strategy. Studies might include how and why corporations expand,
the
impact of entrepreneurs, the interactions between corporations, and the role of
governments in regulation.

Foreign

comprises all commercial transactions

(private and governmental, sales, investments, logistics, and transportation) that
take place
between two or more regions, countries and nations beyond their political
boundaries.
Usually, private companies undertake transactions for profit; governments
undertake them for
profit and for political reasons. The term "international business" refers to all

those business activities which involve cross-border transactions of goods, services,

resources
between two or more nations. Transactions of economic resources include capital,
skills,
people etc. for international production of physical goods and services such as
finance,
banking, insurance, construction etc.

Factors and production, resources, or inputs are what is used in the production
process to
produce outputthat is, finished goods and services. The amounts of the various
inputs used
to determine the quantity of output according to a relationship is called the
production
function. There are three basic resources or factors of production: land, labor and
capital. The
factors are also frequently labeled "producer goods or services" to distinguish them
from the
goods or services purchased by consumers, which are frequently labeled "consumer
goods".
All three of these are required in combination at a time to produce a commodity.

Q3.

a). controlling supply reduces the supply of drugs

Q1=50

Q2=30

P1=10

P2=20

Previous expenditure on drugs is

P1 x Q1

10 x 50= Rs 500

New expenditure on drug is

P2 xQ2

20 x30= 600

Under the stick control Measure reduce the supply of drugs and prices pay on drugs
goes higher

than previous and quantity reduce the previous. Since the demand curve is very
steep even through

the price is goes up .people are willing to pay higher price on a small amount of
drugs than previous
drugs increases than previous.

b).

Under the education and awareness building measures to reduce demand

P3- cost born by the society theres a dead weight loss to the society

If

Q1=50

Q2=30

P1=20

P2=10

Previous expenditure

P2 x Q2

10 x 30= Rs 300

New expenditure on drug is

P1 xQ1

20 x50= 1000

Total money spent on drugs decreases due to education and awareness building
(previous
expenditure is higher than new expenditure)

Q4.

To make consumers pay most of tax

Place tax on good with step demand

Since demand for the good is relatively in elastic, the associated demand curve has
a steep slope

The demand curve for the good is relatively in elastic, consumer end up absorbing
the majority of
the tax incident, by paying the majority of the tax the difference between the price
paid by
consumers after the tax (Pc) and price paid for the tax(Po)time the new level of
consumption Q1

The effect on the demand for good due to the tax the drop in demand is small.
Since goods are
relatively inelastic. Consumers are most likely to pay the tax with little reduction in
their
consumption of goods

To make consumer pay most of tax, place tax on goods with relatively flat supply

The supply curve for goods is relatively flat (elastic), consumer end up paying the
majority tax
incidence

The difference between price paid by consumer after the tax (Pc) and the price paid
before the tax
(Po), times the new level of consumption, Q1

To make producers pay most of tax, place tax on goods with steep supply

The producers allocation to the tax is measured by the difference in (P-Po)

Since the step supply curve, notice that majority of tax is absorbed by the producer

To make producers pay most of tax, place tax on goods with relatively flat demand

For goods with a relatively elastic demand, the reduction in demand caused by a tax
is significant,
and greater burden of the tax will fall on the producer.

The producer allocation to the tax is measured by the differences in prices received
after (Pp) and
before (Po) the tax, time the new level of consumption, Q since demand for goods is
relatively
elastic, notice that the majority of the tax is absorbed by the producer and a smaller
portion by the
consumer