Answer to Question #284340 in Economics of Enterprise for MMM

Question

1)In Australia a consumer of electricity would save, on average, AUS$1000 by switching from the most expensive to the least expensive electricity supplier. However, 30% of consumers do not switch because of the effort required and 22% do not switch because they lack the necessary information. Evaluate possible reasons why consumers may behave irrationally.

2)Between Q4 2016 and Q4 2019 the global price of gold increased from $1275 to $1481 per ounce. Over the same period, the global supply of gold increased from 888.8 tonnes to 889.5 tones. Only 10 countries mine 62% of global output. Evaluate reasons why the supply of gold is price inelastic.

Answer 1

Solution:

1.). Consumers behave irrationally due to several reasons such as:

·        Making decisions due to irrational assumptions.

·        Disliking things for irrational reasons.

·        Following the wisdom of the crowds.

·        Attachment to past spending.

·        Lack of control.

·        Choosing short-term pleasure and ignoring long-term costs.

 

2). The reasons why the supply of gold is price inelastic are as below:

·        There is a limited amount of raw material available.

·        The capacity for gold is limited by a particular size.

·        Limited factors of production.

·        Planning restrictions.