Q.1 “Which do you think has a greater effect on the consumer price index: a 10 percent increase in the price of chicken or a 10 percent increase in the price of caviar? Why?” What do you think and why?
A price change for Caviar as compared to Chicken, will not have as much of a significant effect on the demand of Caviar in the market or its purchase having any impact on it, as much a price change in Chicken will have. A $ 10 price rise for Chicken will have a high impact since it is considered as a daily purchasable item for an average family (Samuelson 1965). Fast food chains that rely on chicken based meat products will have a major impact on it as well, as it will exceed the local consumer’s buying power.
Q.2 Can you think of examples or situations where price elasticity is used in business to determine the price of products? For example, how do airlines use the concept of price elasticity to price their flights?
McDonald’s, Starbucks or KFC can be used as examples to exemplify the implication of price elasticity for product price determination. Since the ingredients used in the preparation of the fast food items will be dependent for fast food products, the element of price determination will include the current market price for the acquisition of those products. Since, the before mentioned examples being part of FMCG, these examples will have a continuous variation in their price, with the rise and fall in the market.
Q.3 is it fair to call economics a science? Why or why not (and don’t worry, your answer won’t offend me). Why are economic assumptions important, and if economists can’t do laboratory experiments how do they draw conclusions about their assumptions?
Economics is considered a scientific field since data trends gathered from analyzing and sampling price changes in the market, help determine the growth and downfall of market segments (Horwitz 1980). An economic analyst can foresee a future of any market segment based on the trend that has been observed in it. This can also assist in defining whether a country’s economy is progressing or regressing.
Q.4 I have often said to my students that a person (and especially an economist) should not offer normative statements about the world if he/she cannot provide a positive analysis of the situation. What do you think I mean by this statement and do you agree or disagree and why?
I agree with the statement mentioned above since it is only helpful to back up a normative statement with evidence or facts worthy towards building a strong case towards the normative statement. A positive analysis establishes the basic guideline of viewing and analyzing things from all perspectives, henceforth getting a good perception of things from both a positive and a negative angle (Hands 2012).
Hands, D. W. (2012). The positive-normative dichotomy and economics. Handbook of the Philosophy of Science, 13, 219-239.
Horwitz, M. J. (1980). Law and Economics: Science or Politics?. Hofstra Law Review, 8(4), 2.
Samuelson, P. A. (1965). Using full duality to show that simultaneously additive direct and indirect utilities implies unitary price elasticity of demand. Econometrica: Journal of the Econometric Society, 781-796.