Scenario 1:
If I had been hired as an economic consultant
to evaluate the nation’s airport security
systems, I would explain at least the following
questions in my evaluation:
A) The feasibility of this system regarding the
extra cost to the consumer: These security systems
add another $5 to the cost of the airplane ticket.
But in my opinion, this cost is justified. For
the consumer who has purchased an airplane ticket,
this is simply another added cost that he should
have no problem with. If a cost-benefit analysis
is carried out, the benefits from such a security
system are many and if these systems were not
implemented, there is immense risk and danger
associated with their non-existence. Any person
can board a plan carrying any weapons or metallic
equipment which might not be a safe option. So,
for the benefit of the passengers who can be assured
of their safety, another $5 should not be such
a huge cost.
B) The feasibility of this system regarding wastage
of time: A passenger who intends to board a plan
generally gets to the airport lounge knowing that
security checks are time-consuming. The 10 minutes
that it takes for each passenger to get himself
pronounced secure (or not) by these systems does
sometimes prove to be a hassle in times of rush,
the holiday season, etc. If this time period could
be shortened to 5 or 6 minutes, this would cease
to be a problem (Boone & Kutrz, 1994).
Scenario 2:
Price Elasticity of Demand:
The Price Elasticity of Demand is a concept that
measures how much the quantity demanded of a good
changes when its price changes. Elasticity is
analogous to responsiveness; a good is ‘elastic’
when its quantity demanded responds greatly to
price changes. Demands for goods vary in their
elasticity. Demand for food generally responds
little to price changes and is inelastic, while
airline travel is highly price sensitive and is
therefore elastic.
Its measurement is as follows:
Price elasticity of demand = E = percent increase
in Q / percent decrease in P
When a 1 percent rise in price calls forth more
than a 1 percent decline in quantity demanded,
this is price elastic demand
When a percentage rise in price results in an
equally compensating decline in quantity demanded
(so that total revenue remains unchanged), this
is unit elastic demand.
When a 1 percent rise in price evokes less than
a 1 percent fall in quantity demanded, this is
price inelastic demand (Parkin, 1994).
In the scenario given to us, the price has increased
from $3 per pound to $3.45 and the quantity demanded
has decreased from 30 apples to 21 apples a month.
To calculate the price elasticity of demand:
Percent change in quantity = [( 30 – 21
) / 30 ] * 100 = 30 %
Percent change in price = [( 3 – 3.45 )
/ 3 ] * 100 = 15 %
Hence, price elasticity of demand = 30 / 15 =
2
Result: the price elasticity of demand is ELASTIC.
This is because as the price increased, the quantity
demanded decreased by more than 1 percent (Samuelson
& Nordhaus, 1989).
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