Marginal rate of substitution and demand elasticity

Week 2 Discussions and Required Resources

Two-part assignment – All parts must be at least 300 words unless otherwise noted. Please read all attachments and follow ALL instructions.

Part 1: Marginal Rate of Substitution

What is the marginal rate of substitution (MRS) and why does it diminish as the consumer substitutes one product for another? Use examples to illustrate.
 

Guided Response: In 300 words or more, please, provide your response to the above discussion question. Find two goods from your own consumption basket and explain how the MRS changes for the two products as you substitute one for the other. 

Part 2:   Demand Elasticity

Please, read the article Hainer, R. (2010) – http://www.cnn.com/2010/HEALTH/04/24/social.smokers/index.html, provided in the required readings section for this week. The tobacco industry is a prime example to consider when talking about price elasticity of demand. While nicotine use can be addictive for many users, it is not addictive for the so-called “social smokers”.
 

What can we say about the price elasticity of demand for nicotine products (such as cigarettes, pipes, tobacco) in the group of nicotine addicted users, versus the group of “social smokers”? Can we say whose demand is likely to be more elastic? Why?
 

Guided Response: Provide your response to the discussion question in 300 words or more. Further, comment on the effectiveness of government policy aimed at reducing the negative effects of smoking on health. For example, consider high taxation on producers? – is that effective? 

Required Resources

Text

Please read the following chapters in: Managerial Economics:

Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/

· Chapter 3: Consumer Demand Analysis

· Chapter 4: Market Demand Analysis and Estimation

Article

Hainer, R. (2010). Social smokers aren’t hooked on nicotine, just smoking. Cable News Network. Retrieved from Weather, Entertainment & Video News. Retrieved November 13, 2012, from

http://www.cnn.com/2010/HEALTH/04/24/social.smokers/index.html

Websites

Bloomberg (http://www.bloomberg.com)

Cable News Network (http://www.cnn.com)

The Economist (http://www.economist.com)

Recommended Resources

Multimedia

TED. (2004, February). Malcolm Gladwell: Choice, happiness and spaghetti sauce (Links to an external site.) [Video file].  Retrieved from  

http://www.ted.com/talks/malcolm_gladwell_on_spaghetti_sauce.html

TED. (2005, July). Barry Schwartz: The paradox of choice [Video file].  Retrieved from   http://www.ted.com/talks/barry_schwartz_on_the_paradox_of_choice.html

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