Manyeconomists are convinced that fuel has a relatively inelastic demandcurve. This discussion substantiates this point of view. Inelasticdemand occurs when the quantity of goods demanded does not changeproportionately as the change in their prices. For instance, when theprice of a good with inelastic demand increases, the quantitydemanded of the good does not change significantly like the change inprice (Karlan et al, 2013). This makes the inelastic demand curve tobecome very steep because the price on the Y-axis changessignificantly with little change on the quantity in the X-axis of thedemand curve.
Iagree that fuel exhibits this behaviour because no matter how theprice of fuel changes, people will always purchase it because it is anecessity (Lin & Prince, 2013. People need to cook, to travel,and perform other activities that need energy and fuel in order tocontinue normally in life (Lecca et al, 2011). Therefore, when thereis a shortage there will be a large increase in price of fuel butpeople will continue demanding it showing an inelastic demand curve.
IsCoase’s theorem valid? Why or why not? How does Coase’s theoremaddress the problem of environmental pollution control? Does thismake sense? Why or why not?
Coase’stheorem states that in a perfectly competitive market and lowtransaction costs, an efficient outcome in terms of distribution ofinputs and outputs will be achieved despite how property is divided(Agarwal et al, 2013). This theorem is valid because it ensures thatexternalities are internalized in order to reduce inefficienciescaused by externalities (Yalcintas, 2013). Coase’s theoremaddresses the problem of environmental pollution by ensuring that thea trade in the environmental pollution can be used in a situation oflow transaction costs to ensure that there is an efficient outcomedespite there being a property right on the cause of theenvironmental pollution (Crifo & Forget, 2015).
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