Short Run

A wheat farm:

ANSWER: For a wheat farm, there is a need of labour, planting crops, a building for storing and planting equipment. Perhaps, around 1 week would do. Gathering of planting materials, especially on variable inputs, would take time around 1 week due to delivery and the preparation. Some would remain static like the building if there is and the planting equipment which given.

A bakery (manufacturer):      

ANSWER:  On a bakery, on a short run, you can operate within 1 day. The gathering of inputs like the ingredients would only take one day to complete. Some static inputs like the baking materials can only be varied if there is an urgent need of improvisation or replacement.

A bread shop:                        

ANSWER:  Bread shops are dependent on the bread manufacturers so we can say that the inputs are variable and this can only take one day to complete. The explanation is that, the production of bread is daily and the variable inputs only depend on the bread manufacturer. Fixed inputs will remain the same so long as there is a need of urgent expansion or replacement.

Question 1B

Explain how the division of labour and bulk-buying may enable a bread manufacturer to reduce costs.

ANSWER: Division of labour will maximize the efficiency of the labourers. If you can assign them for a specific task and on a specific field of work, it will preclude the idea of hiring more workers. Further, in bulk-buying, you can avail of wholesale discounts like bundled production materials which will definitely lessen the costs of a single material. It will also require a single transportation for the delivery of the products.

Question 1B  

The case study refers to two examples of market failure in bread manufacturing.  Choose ONE example and explain what type of market failure it is using the relevant economic concepts.

ANSWER:

Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party. (Market Failure, n.d.)

The great demand for bread has prompted the bread manufacturers to increase the supply of bread to meet the demands of the consumers. The increased production of bread dramatically increased the emission of CO2 in the atmosphere causing harm to the environment and eventually to the people and this would require the government's intervention to reduce carbon emissions by improving urging bread manufacturers to improve their factory facilities. The large consumption of bread has caused harm, directly or indirectly, to a third party.

QUESTION 2b                    

The case study refers to how the government and its agents are intervening to solve these two examples of market failure. 

ANSWER:

The UK Food Standards Agency (FSA), an independent Government department, set up to protect the public's health and consumer interests in relation to food. They had made an initiative to protect public's health and awareness by reminding and informing the consumers about the good and bad benefits of eating bread.

This type of Government intervention can be considered as "Fiscal Policy Intervention" wherein the government would somehow make an action to raise the prices of bread to reduce the demand and the consumption of the said good.  

Do you think this intervention is likely to be effective?  Are other types of intervention likely to be more effective?

ANSWER:   

I do not think so since according to this case study, 99% of UK residents are bread consumers and it is almost inevitable for the government to intercept them or for the least, to subdue the demand. There will be no more effective government intervention like this one, if this intervention will work, since this involves a prime commodity, a need, and therefore most likely, it cannot be intercepted or stop.