Fundamentals of Microeconomics

It is noteworthy that the resources are required for production of goods and services and these resources are typically limited. If the availability of resources was not scarce, then there would be potentially unlimited supply of goods and services and hence there would not be any scarcity. In such a scenario, there would not be any pricing of goods and they would be freely available. The higher availability of resource would typically lead to increased production and lower scarcity (Mankiw, 2014).

The economic problems arise as there is relative scarcity of resources. The resources are priced only because the resources are limited and unlimited resources would imply that the given thing would be free. Further, the demand for various goods and services is potentially unlimited and insatiable which denies permanent solution to these economic problems of production and resource allocation. Due to limited resource availability, it is a common endeavour to analyse and utilise these in the most efficient manner so that maximum profit and utility be derived (Pindyck & Rubinfeld, 2001). Hence, economic problems do not have absolute solutions.

The explanation for the figures provided is offered below.

Physicians

Since the demand elasticity is lower than 1, hence it is apparent that the demand is relatively inelastic. This is expected since physicians are required to treat common ailments and thus even when there fee increases, there would not be much change in the demand. This is because health is considered to be significant by most sections of the society. Also, the availability of substitutes for physicians is low and hence most people have no alternative (Nicholson & Snyder, 2011).

Foreign Travel

Since the demand elasticity is significantly greater than 1, hence it is apparent that demand is highly elastic. This is on expected lines since foreign travel is not a basis necessity and hence would constitute as luxury good. As a result, higher costs would dissuade people from engaging in foreign travel especially the tourists. Besides, for certain segments such as tourists, casual travellers, there are substitutes in the form of domestic travel which further enhances the elasticity (Mankiw, 2014).

Newspapers

The figure of 0.1 for demand elasticity is indicative that the demand for newspaper is highly inelastic. This is highly expected since there are no substitutes of newspaper. Even though there are news channels, but the newspapers provides all the information in a concise manner unlike news which requires more time. Further, the newspaper typically is a low priced item, thus high percentage change also would not enhance its price by much to deter demand. Also, the consumption per household is limited (Krugman & Wells, 2013).

Radio and Television Receivers

The elasticity of demand is more than one which indicates elastic demand. This is expected as if the price increases, the consumer would shift to alternate media of information and entertainment on phones or laptops using internet (Nicholson & Snyder, 2011). This is especially true for the young generation who are tech savvy.

When economic growth had not taken place, people mainly lived on subsistence. As a result, the goods production was limited as the concept of surplus had not caught up and only goods for self-consumption were made. However, in the era of economic growth, there has been a tremendous increase in the production quantity which leads to a situation where there is relative abundance of these goods. But in order to produce these goods in relative more quantity, a greater amount of time is already utilised. Since majority time is consumed in production of goods, hence the amount of time to enjoy these has become limited. Thus, the given statement aptly captures the inherent trade-off between time usage for production of goods and consumption of goods (Samuelson & Marks, 2003). Ideally, an optimum balance should be maintained between the two.

For ensuring that there is complete rationality in the process of economic decision making, it is imperative that each and every factor needs to be taken into consideration before making the final decision. This would typically require a huge amount of time. However, it is noteworthy that time has value and hence reasonable rationality in decision making is advisable. This is because the incremental gains from complete rational decision making would be outweighed by the incremental costs of excess time required. As a result, it makes sense for an individual to aim for bounded or limited rationality while making economic decisions rather than wasting a plethora of time for miniscule efficiency gains in decision making (Mankiw, 2014). Additionally, this may also make the decision making process excessively confusing due to the amount of factors and variables at hand which may not be value additive.