Assignment Overview:
Answer 1: Basically there are three economic problems (Sullivan, Sheffrin2003). These are as follows:
- What to produce?
- How to produce?
- For whom to produce?
These are the basic economic problem that every business and a businessman have to face.
- What to Produce?
This problem is related to what should an economy produce for satisfying its customers or consumers. In case of creation of a movie, the producer should get influenced what kind of a movie is in demand (Cross, 1997)among the viewers, and which movie can make him earn profits.
2. How to Produce?
The next problem of an economy is how to produce the product that is being demanded by the consumers (Mankiw, 1998). Similarly in the case of making a movie the maker should be clear with the views that how the movie is to be produced?, what all things will be required?, how many people would be need?, etc.
3. For Whom to Produce?
The last but not the least problem that an economy faces while producing a good that which class of consumers should it focus. Similar is the case with creating a movie. While the production of a movie, it should be clear in the mind of producer that which section of viewers he wants to focus on. He should know, what all that class of viewers like?, what they expect?, etc.
Answer 2: A choice of self interest includes the thinking what you think is best available for you, and the choice of social interest mean what is believed to be the best for the whole society. In case of movie making, the maker combines his own interest with the interest of his viewers. The maker has to include many things that he does not like for the interest of his viewers, and has to involve things that most of the viewers might not like. This is how a movie illustrates self-interested choices that are also in the social interest.
Answer 3: If the price of tickets will be reduced, it would definitely become an incentive for people to watch a movie in China. The benefits of of the decision to reduce cost will be:
- More viewers
- Quick revenue
- More demand
- Increased sales
- Increased market value
Yes, the present condition in China is not pocket-friendly for every potential consumer. However, if the price of the tickets will be reduced, it will attract more customers and will generate comparatively more profits. Therefore, the choice of decreasing the price can said to be rational.
Answer 4: (a). The theory of trade-off is defined as an idea that a company or an individual selects about how much debt finance and equity finances to be used by balancing the costs and benefits. These are the ideas that are required when the company faces losses and need extra fund. In the case, given in the question, the person also faced trade-off, as the loss is face in sense of marks.
(b). Opportunity cost is a cost of any activity determined in terms of the estimates of next best alternative available. In case of the given question, the opportunity cost of a movie was 30.
Answer 5: (a). In economic, the law of demand is a law of economics. According to this rule, customers buy more goods when the price of those good drops and the purchasing power decreases with the increase in the price. In the given case, the demand of the ticket will increase if the price is dropped. People will start buying more tickets, if the companies decide to drop the prices of their tickets.
(b). Substitution effect is defined as an effect when customer replaces the less expensive item with the more expensive one. These exchanged items are basically the alternatives or substitutes. This effect is also known as the income effect. In the given case, the movie viewers will replace the expensive tickets with the less expensive ones.
(c). Income effect is defined as an effect when customer replaces the less expensive item with the more expensive one. These exchanged items are basically the alternatives or substitutes. This effect is also known as the substitution effect. In the given case, the movie viewers will replace the expensive tickets with the less expensive ones.
(d). There are five factors that are exported to increase the demand of a movie ticket in China.
1. Modification in the costs of alternatives,
2. Modification in preferences
3. Modification in disposable income
4. Modification in expectation of the costs of goods
(e). Law of Supply
The law of supply (Mankiw, 2007) defines that a hike in price results in a raise in the supply of the quantity. This means the produces are willing to offer more for sale at higher prices.
(f). In economic, the law of demand is a law of economics. According to this rule, customers buy more goods when the price of those good drops and the purchasing power decreases with the increase in the price. In the given case, the demand of the ticket will increase if the price is dropped. People will start buying more tickets, if the companies decide to drop the prices of their tickets. The elasticity of demand is also the basic problems of economics. These are: Basically there are three economic problems. These are as follows:
- What to produce?
- How to produce?
- For whom to produce?
These are the basic economic problem that every business and a businessman have to face.
What to Produce?
This problem is related to what should an economy produce for satisfying its customers or consumers. In case of creation of a movie, the producer should get influenced what kind of a movie is in demand among the viewers, and which movie can make him earn profits.
How to Produce?
The next problem of an economy is how to produce the product that is being demanded by the consumers. Similarly in the case of making a movie the maker should be clear with the views that how the movie is to be produced?, what all things will be required?, how many people would be need?, etc.
For Whom to Produce?
The last but not the least problem that an economy faces while producing a good that which class of consumers should it focus. Similar is the case with creating a movie. While the production of a movie, it should be clear in the mind of producer that which section of viewers he wants to focus on. He should know, what all that class of viewers like?, what they expect?, etc.
References
1. Sullivan, Arthur, and M. Steven Sheffrin. (2003). “Economics: Principles in action. Upper Saddle River”. New Jersey 07458: Pearson Prentice Hall. pp. 79. ISBN 0-13-063085-3.
2. Mankiw, N. Gregory (1998). Principles of Economics, Wall Street Journal Edition. Dryden Press, San Diego. pp. 71–73. ISBN 0-03-098238-3.
3. Cross, G. Robert. (1997). Revenue management: hard-core tactics for market domination. Broadway Books. pp. 66–71. ISBN 978-0-553-06734-7.
4. Mankiw, Gregory (2007). Principles of Economics. South-Western Cengage Learning. pp. 470. ISBN 978-0-324-22472-6.
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