Tutor profile: Sarabjeet B.
Define economics. Can economics help solve environmental problems?
Economics is the study of the rationale behind the choices made by the consumer, producer, and the government, when faced with the limited resources. It’s the study of optimum allocation for resources when consumer wants utility minimization, producer aims for profit maximization, and government targets maximum social welfare. Environmental protection is the need of the times however, the opportunity cost of addressing the issue is very high, which makes it difficult to make economic choices in its favor. Economics can help realize the cost benefit analysis of resource allocation in the present times to garner the benefits in the future.
What is monetary policy? How can monetary policy be instrumental in inflation control?
Monetary policy is the Central Banks policy to control the supply and cost of money in the economy to attain desired results like maximum employment, stable prices, and economic growth. Central banks intends to affect the interest rates on the credit available to the economy. Inflation is a substantial rise in the general price level in a given time period. Monetary policy limits the amount of money and cost of credit to keep inflation in the approved range. Tools like Open market operations influence the supply of money, whereas discount rate and reserve requirements determine the cost of credit. By selling government securities, Central bank sniffs money to control inflation. On the other hand, It makes credit expensive by increasing the discount rate and reserve requirements. Hence, by doing so, Central bank eases the demand pressure and inflation in the economy.
Define law of diminishing marginal utility. Also present an example to demonstrate the application of the concept.
According to the law of diminishing marginal utility, as the consumer consumes more and more of the given commodity, his satisfaction level from the next unit diminishes. The total utility with each unit consumption, increases; however, marginal utility diminishes. Hence, the consumer is ready to pay lower price for the next unit of the product. The diminishing marginal utility, is the cause of law of demand. Bogo price strategy is the best example of the law. As the seller knows that the satisfaction level from the next unit will be comparative lesser than the first unit, second unit is sold at discount.
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