How the rate of population growth influences the level of GDP per person.

1. With these principles, explain what they mean; follow up with an example for each principle. Feel free to use real world events as an example but be sure to cite your source. Explain, provide an example, use an in-text citation, and provide the reference to receive an 'S' for your work.

Principle 4: People Respond to Incentives

Principle 2: The Cost of Something Is What You Give Up to Get It

1. Consider how the rate of population growth influences the level of GDP per person.

2. explain the differences between absolute advantage and comparative advantage.

3. why do economists oppose policies that restrict trade among nations.

4. what determines how the burden of a tax is divided between buyers and sellers.

Principles of Microeconomics questions

Principle 4: People Respond to Incentives

The incentive is a payment or compensation that stimulates an increase in the output or investment. People respond to Incentives is a principle of economics that explains how people react towards incentives and the outcome of the response. Example, fertilizer subsidy will encourage more farmers to use fertilizers in their farming activities. This will eventually increase the supply of the products that ultimately reduces the price. When price decreases people increase their demand. From the principle, it is evident that people respond to the incentives that are positive more than those that have a negative impact (Mankiw, 2014).

Principle 2: The Cost of Something Is What You Give Up to Get It

For one to get something they want or desire, they have to give up another so that they get what they prefer to get. What you give up to get what you want is an opportunity cost. Consider a person who wants a promotion at work. The person has to choose between going back to school to get a better degree to qualify for the position or to work for the company and lose the promotion. When the person chooses to go back to school to get a better degree, the opportunity cost will be a salary of working at the company. For him to get the promotion, he has to give up working and go to school (Mankiw, 2014).

2. Consider how the rate of population growth influences the level of GDP per person.

Population growth and level of GDP per person are inversely populated. A higher population growth reduces the GDP per person while a lower population growth increases the GDP per person. When the growth rate is high, there is a high rate of dependency ratio as increased expenditure to care for the large population resulting to low production and economic growth in general. It thus reduces the GDP per person. When the population growth is slow, the living standards are raised as the population can be cared for comfortably thus increasing the GDP per person. Example, China has had the highest population growth, and it has been among the third world countries. When it decided to cut the fertility rate from 5.8 to 2.2 per female, the GDP per person has increased, and the economic development is increasing.

3. Explain the differences between absolute advantage and comparative advantage.

Absolute advantage happens when a country or firm can produce more of a good or service than its competitors with an equal amount of resources as that of the competitor. Comparative advantage occurs when a country produces a given at a lower opportunity cost than the competitors (Smith, 2012).

4. Why do economists oppose policies that restrict trade among nations?

The policies restricting trade among countries makes the countries not to benefit from comparative advantages they have in production. It thus kills the benefits of all the countries in international trade.

5. What determines how the burden of a tax is divided between buyers and sellers?

The burden of the tax is divided according to the elasticity of supply and demand in the market. The elasticity of supply is the supplier willingness to leave the market and elasticity of demand is the willingness of the consumer to leave the market as per the situation they face and the decisions they make.

Example, when the demand is inelastic, and the supply is elastic; the buyer bears the enormous burden of the tax, and when the supply is inelastic and the demand elastic, the supplier will bear the great burden of the tax.

References

N. Gregory Mankiw. (2014). Principles of Microeconomics. 7th Ed. Cengage Learning. Newyork.

Reinhard Schumacher. (2012). Erasmus Journal for Philosophy and Economics; Adam Smith’s theory of absolute advantage. Volume 5, Issue 2,. University of Potsdam, Germany. pp. 54-80.