When the candidates promise the moon in pre-election time, what fundamental economic logic is swept under the brush and not mentioned by the candidates?
Answer to Problem 1E
The economic concept, 1) only that much of demand can be met for which resources are available and 2) normally resources are scarce, is ignored by the candidates when making pre-poll promises.
Explanation of Solution
Let us take the example of the fine business person that American President, Mr. Donald trump is. Before elections, Trump had promised to revive the business competitiveness. For this, he proposed corporate tax cut from substantial 35% to 21%. He went by his words and reduced the tax rate in his first term. Now let us see the likely results. Tax cuts mean greater profit for the companies. That is fine for the corporates. However, what is in store for the economy?
Tax cuts mean lower supply of disposable funds for the government. This translates to slackening of the economy owing to lesser spending by the government on essential nation building activities like infrastructure, social responsibilities, healthcare, military etc.
Again, when some pre-poll candidate is vowing to increase budget of healthcare, because the supply of money is limited, either that may lead to less expenditure in fields like infrastructure or increasing money supply by levying excess tax from companies or the common people. Demand (of voters) that can be met is a function of the available resources. Scarce supply cannot lead to greater supply of any commodity.
It is not that candidates do not understand the implication of the sky-high promises they make, if they were to execute them. However, the voters also play a part in these untenable statements by falling for it and electing that candidate.
Introduction:
Anything in the economy is based on supply and demand. Abundant availability on the supply side is required to produce adequate goods. However, the candidates only seem to appease the demand of the voters in pre-election rallies. Whether the supply side is abundant enough to cater to that demand or the resource is actually scarce, is a point left for the to-be-formed government to tackle after the elections.
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Chapter 2 Solutions
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