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21 February, 23:23

Advocates of small government complain that two proposed government programs will steal the market from small businesses: One program will foster a major increase in the government production of bread; the second will increase the government production of manicures. If the demand for bread is highly inelastic, and the demand for manicures is highly elastic, which program should worry small-government proponents the most

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  1. 21 February, 23:36
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    If the demand elasticity of bread is highly inelastic, it means the effect of change in price on demand of bread will be insignificant. Hence if a program fosters major increase in government production of bread, the prices of bread may get down. As law of demand states with lower price demand will be higher of government made bread. But as the demand is inelastic, there will be no significant effect on demand of bread of small business producing bread.

    On other hand, If the demand elasticity of manicure is highly elastic, it means the effect of change in price on demand of manicure will be significant. Hence if a program that will increase in government production of manicures, the prices may get low. With lower price demand will be higher of government made manicure. And as the demand is highly elastic, there will be severe significant effect on demand of manicure of small business producing manicure.

    Thus the second program worries small government proponents the most.
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