Economics Essay Example | Topics and Well Written Essays - 2000 words - 2

Economics - Essay Example For example: a company that has an ice cream machine that usually produces 40 boxes of 1 pint of ice cream a day was able to produce as much as 80 boxes of 1 pint of ice cream a day by cutting on ‘down-time’ due to machine breakdown caused by lack of machine maintenance. It could also refer to the application of a special device in a machine in order to enhance its speed and therefore increase the volume of production. Another way is to maximize the use of manpower by establishing a short and clear chain of command within the business organization. Therefore, it is possible to avoid the incidence of employing too much unnecessary employee in the crowd. In order to achieve economies of scale, a good management is essential. Basically, it is the managers and supervisors who suggests and/or make critical decisions in order to maximize the daily fixed costs (such as labour costs and over-time pay and electricity costs) of the company. These are also the same group of people who are responsible in cutting down the number of ‘rejections’ in a production line. Minimizing the number of ‘rejections’ can indirectly increase the company’s profitability by ‘cutting down the unnecessary opportunity losses’ and ‘prevent avoidable expenses’ on the part of the company. Q.2 Explain how changes in the equilibrium price and quantity are influenced by the elasticity of demand and supply. Explain the difference between a shortage and a surplus and discuss why either might occur. Basically, the market equilibrium price and quantity is the point where the quantity supplied is equal to the quantity demanded. The said equilibrium point changes when there is an imbalance between the demand and supply. For example: if the demand for a certain goods is above the supply, the price of goods will automatically go up to a certain point where a new equilibrium point will be created. Likewise, if the supply