Question

QUESTION 2

Discuss the usefulness of the concepts of elasticity such as price elasticity of demand, income elasticity of demand, advertising elasticity of demand and cross-price elasticity of demand to businesses in Namibia.   [25 Marks]

QUESTION 3

Different economies use protectionist policies to protect domestic businesses from foreign competition. Discuss if it is worth it to protect domestically owned Namibian businesses from foreign competition.   [25 marks]

Answer 1

2. Price elasticity of demand reflect the responsiveness of change in demand to change in prices similarly, income elasticity represents the responsiveness against change in income,advertising elasticity to change in advertising and cross elasticity is the responsiveness to change in demand for the price change of other product whether substitute or complementary.

It is important fot the businesses to be aware of their respective elasticities for their products as this help them to define strategies in terms of advertising, pricing,market conditions, economic environment. For example if the Price elasticity is relatively inelastic i.e e<1 ,the business may decide to raise prices to increase revenue hence profitability since price increase impact will be higher than demand fall, similarly business can adapt to expected demand jn case of economic growth leading to income rises, market changes causing prices of other product change, all this help in anticipating demand better leading to business to be in proper situation in terms of production capacity to meet that demand or in terms of lower demand to be in position to down size or control spending beforehand.

3. The usefulness of the protectionism depends upon if the future benefit of that is greater than the cosg consumer is facing in terms of higher prices. It makes sense to provide protection to Nascent industry so that allowing them space to grow and develop and build economies of scale and expected benefit in terms of employment and exports overshadow the cosg incurred at the same time apart from the economic profit for national interest/security it becomes imperative to provide protection so as to develop those capibilities inhouse specially in defence, telecommunication etc. There are disadvantages too of protectionism which involves higher prices customer faces,inefficiencies ,firms becomes lazy and doesn't innovate this hamper technological enhancement so, overall there is need to determine till which stage you want to protect your industry as it becomes imperative in this globalised world to let it fight it out in the market based upon capibilities when they are ready which foster entrepreneurship and innovation.