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Applying the Analysis

Applying the Analysis

  1. The economics of any country depends on two most important sectors: agricultural and industrial. To expand production possibilities of the country, everything it needs to do is just to improve these sectors. The US had some improvements in the field of biotechnology, which made a positive impact on the development of agricultural sector as new discoveries have led to new possibilities. That increased the US production possibilities because the country could offer better products on the market, which increased the demand for those products. As a result, the supply has also increased, which made the US economy rise.
  2. According to Figure 2.3b, which indicates that corporations account for 82% of total sales and proprietorships and partnerships have only 18% of total sales, one can make a conclusion that it is much better to hold a corporation than proprietorship or partnership because the revenue in this case is much bigger. The proprietorship or partnership cannot be a corporation if there are no many sales. If they become a corporation while having just a few sales, they can be absorbed by others. When they experience rapid sizable increase in their production, sales and profits, then, being a corporation, they can earn much more money in the future and the possibility of being absorbed by others is much less.
  3. Rent controls are designed to make housing more affordable, but there are still positive and negative effects of it. The positive one is that rent controls make housing more affordable and it attracts a large number of renters. On the other hand, there is a problem with supply. Rent controls make the prices lower and it is less attractable for landlords to offer housing on the rental market, which is a negative effect. So, there is big demand, but at the same time there is little supply. That is why the number of rent-control apartment buildings tends to diminish.
  4. Market works successfully when there is equilibrium between demand and supply. It can be controlled by pricing. If the price goes up, the demand goes down, and vice versa. If the number of buyers increases, but the amount of products is still the same, it will lead to the shortage of products. That is why it is typically difficult to end price ceilings once they have been in place for a long time without getting shortage of products.
  5. Drug rehabilitation programs let people buy drugs legally for lower prices in legal markets. As the demand of drug addicts is very inelastic, the amount of illegal drugs consumed by addicts at the lower prices increase only modestly. Besides the inelastic demand of the drug addicts, another market segment whose demand is rather elastic could be mentioned. This is the segment that includes the occasional users, so-called “dabblers”, who have a tendency to use hard drugs when the prices are low. Such occasional users could become the addicts and this increases the elasticity of the demand.
  6. A reduction of an excise tax can produce more tax revenue only if the amount of units which can be sold will increase. For example, if an excise tax for one unit was $1 and the sales were 5000 units, then the tax revenue would be $1×5000=$5000. If an excise tax decreased to $0.8 and the sales increased to 7000 units, then the tax revenue would be $0.8×7000=$5600. The result is that lower excise tax will produce more revenue only if the sales increase (for an inelastic demand).
  7. The current price of gold is $1,224.85. The highest price of gold over the last 12 months was $1,391.16. The lowest price of gold over the last 12 months was $1,215.80.

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