Natural Law Theory

Here is a small video I created explaining Natural Law Theory (Below is transcript):

In this video I explore the strengths and weaknesses of Natural Law:

Transcript of Natural Law Theory

St Thomas Aquinas developed Natural Law theory from Aristotle and the Stoics in the 13th century. Natural Law is an absolutist and deontological theory. To believe and use Natural Law theory, one has to believe in God because Natural Law believes there is one Natural Law which has been issued by God. This means that what is wrong in one situation is wrong in ever situation and to determine what is right and wrong we look at the action itself, not the consequences. There is emphasis on innate human reason to work out how you should be living. Natural law is useful on issues where is the Bible is silent e.g. IVF.In order to use Natural Law correctly we need to identify what is known as the primary precepts. These are the basis of the theory. We need to first agree that these are the main function of life. The primary precepts are the five purposes of human life. The five primary precept are: (i) reproduction (ii) life – to live/ the supreme good (iii) education – makes people independent and fully adult (iv) worshipping God and (v) law and order – upholds justice. These precepts are immutable; they cannot be changed. From the primary precepts, secondary precept form. For example if we examine the principle of life and it is there to ensure that all actions which are life threatening are in the moral law as wrong e.g. murder, abortion, euthanasia, suicide etc are all wrong because the involve going against the precept of life.However, in reality it is not as easy as one action is good and one is evil. Some actions lead to both good and bad consequences which ever way you try and deal with it. For example, a pregnant women finds out she has cervical cancer. If the doctor performs a hysterectomy the baby dies and the mother survives. On the other hand, if she gives birth both the mother and the baby are at risk of dying. So whatever action the doctor takes there will both goos and bad consequences. This is called the principle of double effect. In these situations, two criteria need to be met to make it a permissible action. Firstly, the act itself must not be wrong and secondly, the person doing the action must not directly intend the evil outcome. So he doctor would do the hysterectomy with good intentions of saving the mother. This justifies his action.Casuistry is what applies these primary precepts to individual circumstances. These makes Natural Law quite flexible. It ensures that a solution can be produced from any situation. However, many consider this to be a weakness of the theory.They use the term casuistry pejoratively. This is because on one hand it states it is an absolutist theory and on the other it is allowing room for flexibility.

Natural Law allows us to know the divine and moral law through reason and revelation. Following Natural Law helps us perfect our virtues; both natural and theological. Natural virtues include prudence, temperance, fortitude and justice. Theological virtues include faith, hope and charity. For example, the primary precept of life means that life is extremely important. Therefore, the natural virtue of fortitude is perfected because no matter what happens, one is encouraged to stand strong and take care of our life and as mentioned before suicide will be considered immoral. 

Natural Law is based on five assumptions: (i) everything in nature has a purpose, (ii) nature was created by God, (iii) failure to develop this nature to the fullest is an imperfection, (iv) nature and its moral laws are knowable through reason and (v) natural law is part of some divine plan. Thats why for some people the theory fails. However, it has worked well and influenced the Roman Catholic denomination. For example, Roman Catholics believe abortion is wrong based on that it destroys the purpose of life: to live.

As mentioned, at the beginning Aristotleʼs philosophy influenced the Natural Law theory quite a lot. Aristotle in his theory of causality distinguishes between four causes which helps to explains something fully. Two of the four causes, efficient and final cause, Aquinas used to formulate the Natural Law theory. The efficient cause is what gets things done and the final cause is the end product. Hence, Aquinas goes on to say with us the accomplishment of the final cause/end product that equates to ʻgoodʼ we are doing the correct thing. If we can understand the final cause of an organism we can then work out the efficient cause/ the necessary processes to get the final cause done.

Natural Law is part of the branch of normative ethics. This is different to descriptive ethics. Natural Law is part of normative ethics because the impact of Aristotle’s causes moves it from being a theory that deals with what the population actually think it is right and wrong (descriptive ethics) to what they should think is right and wrong (normative ethics). This is because the natural processes required to fulfill the final cause are what should be right, not necessarily what is right at any given time. 

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Price Elasticity of Demand

Price elasticity of demand = PED

What is price elasticity of demand?
It is the responsiveness/sensitivity of demand to a change in price.

 

How do economists calculate price elasticity of demand?
PED = % Change in Quantity Demanded
              —————————————–
                       % Change in Price

 

How do we interpret price elasticity of demand values?
Price elasticity of demand values are always negative because the show that price and demand have an inverse relationship.

 

If PED is < -1 :
If PED is smaller than minus one then this implies that the demand is elastic.  For example, if the price of a good rose by 10% the quantity demanded  would decrease by more than 10%. Airline tickets are a good example because they are elastic.

 

If PED is between 0 and -1 :
This means that the demand is inelastic. For example if the price of a good increased by 10% then the quantity demand would decrease by less then 10%. A good example of this is food as they have relatively inelastic demand.

 

If PED = -1 :

Then this means the demand is unitary elastic. This is the rarest out of all the elasticities. It means that if a price of the good rises by 10% the quantity demanded will decrease by 10%
To understand the graphical representation of PED, please see my post on the three types of elasticities.

Test yourself (Answers found at the bottom)

 

1. If price increases from 10 to 12 pence and the price elasticity of demand is -0.5. The quantity demanded was 500 units. What will it be now?
a) 550 units
b) 500 units
c) 450 units
d) 490 units
2.If price elasticity of demand is unit then a fall in price:
a) Reduces revenues
b) Increases revenues
c)Leaves revenues unchanged
d) Reduces costs

 

ANSWERS!

 

1. c) This means that any given percentage fall in price leads to an increase in quantity demanded that is half as much; a 20% price increase will reduce the quantity demanded by 10%. This means the  quantity demanded will be 450 units.
2. c) This means the percentage change in quantity demanded equals the percentage change in price so price changes will not alter the revenue.

A great video to help you with this: http://www.youtube.com/watch?v=4oj_lnj6pXA&feature=related 

Also why not check out some further notes in pdf style (not I have not created this file) : http://www.osc-ib.com/ib-revision-guides/pdf/economics-hl-1.pdf

Consumer Surplus

This is a short explanation of consumer surplus. I hope this helps make things simpler

In any given product there will be demand no matter what the price. I realise the magnitude of the demand may vary but the point is if, for example we are looking at the demand for exercise machines – whether the price is £400 or £4 there will always be someone ready to buy it (the amount of people who want to buy it will vary with the price).

We can see a similar situation in reality whether it is Primark or Harrods there is still a demand just the amount of it varies.

Now you must be wondering how does consumer surplus fit into this but it does. The market equilibrium for exercise machines may be £100 so the vast majority of supply will sell them for £100. If we imagine that all suppliers sold them for £100 then the consumers who were already ready to pay to pay over £100 will be gaining an advantage. It is almost like a profit they are making.

Subsequently, consumer surplus is defined as the value that consumers gain from consuming a good or service over and above the price paid.

We can see this clearly in a diagram:

The orange bit shows the consumer surplus – the consumers who are benefitting from the current market equilibrium price.

However, this is not all your need to know! You must know how to valuate consumer surplus. This is done through simple maths…calculating area of a triangle.

The formula for the area of a triangle is 0.5 X Base X height…

So in the diagram above the quantity OP1 is equal to the base which in this case is 100. The next bit is to identify the height and this is the difference between the market equilibrium price and the price where the demand is lowest. In this case it is the from £50 to £100 so the height is 50 (100-50).

The we multiply 50 by 100 by 0.5 and we get a consumer surplus of 2500.

That is how simple it is….

However, in exams the may frighten you by shifting the demand curve and saying what is the new consumer surplus. So remember the same principles apply you are looking at the price where there is demand is lowest and the new equilibrium price!

In economics consumers always just feel price changes.

What I have learnt when doing questions is that I miss read the questions so you have to be careful as to whether the question says what is the difference in the consumer surplus and what is the consumer surplus.

I hope this helps 🙂

Demand

What is demand?

It is desire from consumers for a particular good/service/commodity.
The demand curve…
demand_supply_demand1
The demand curve shows the quantity demanded by consumers at each price of a good/service.
Price and demand are inversely related i.e. as price increases the quantity demand decreases. This describes the demand curve is downward sloping.
There are two reasons one must know for why price and demand have an inverse relationship.

1. The real income effect

As the price of a good/service increases it will eat a bigger chunk of the consumers income making them feel poorer so there are only a few people who are rich enough not to feel this impact. Also, the purchasing power has decreased (and all this means is that only a few people can afford expensive goods and services as they have the financial power.)
2. The substitution effect
This is that in our economy there is a lot of competition which keep prices low which is good for consumers. This means that there are many alternatives to the particular product you are looking for. For example if you wanted to buy window cleaning spray and saw it was £5.99 that may be relatively expensive for you so you might go into another shop and buy a different brand or similar cleaning product which will be cheaper therefore as the price of a good increases the demand decreases as consumers’ will switch to alternatives.

Important key term:

Demand schedule: This is a table showing quantity demanded by consumers at each price level. This is table used to draw a demand curve.

Demand Schedule
What about shifts?
Well a shift in the demand curve will only exist if a non-price determinant changes and the quantity demanded by consumers changes at every price.
shift of demand
In the demand curve above we can see that the demand for shares has decreased and this can be for several reasons.

Why does the demand curve shift?

1. Tastes – social trends and fashion changes and this affects the demand for a good, For example at one point cassettes were very popular but as soon as CDs came the fashion changed to listening to CDs. The demand for cassette tapes decreased.

2. Income – If income increases then people have more purchasing power so the demand at every price level will increase. Vice versa if incomes suddenly decreased than the demand would decrease as people do not have a strong purchasing power.

3. Price of substitutes – substitutes as we mentioned before are alternatives. So if these decrease people are likely too buy more of them as their consumer surplus increases. This means that the good itself will incur a reduction in demand. For example if Pantene Pro-V hairspray became cheaper the demand for L’oreal hairspray would decrease because people would switch to the pantene Pro-V hairspray.

4.The price of complements – these are goods which complement each other i.e. go with each other. For example tea and milk. If the price of complement increases then the demand decreases. So for example if the price of milk rises then the demand for tea will decrease as people may switch tcheapero other cheaper alternative like black coffee or herbal tea,

5. Expectation of future price change – this doesn’t tend to be as big as other factors. But in markets such as the housing industry or the share it has a big impact. If for example houses were supposed to increase prices in the future then the demand for houses will increase because people will wan to buy as they know they can sell it at a later date for a profit.

6. Population increase/migration- If there are more people then the demand for a product is likely to be be bigger. The two main ways in which a population can change are (i) population increase/ decrease through baby boom or increased availability of contraception and (ii) migration – this means people moving in and out of a country.

7. Distribution of income – This is by far the most interesting one. this suggest if the government increased taxes or benefits to the poor then demand for necessities will increase as that is what poor people will demand and the demand for luxuries will decrease as rich people loose some of their purchasing power for it,

Quiz:

1. Demand for a normal product may cause the demand curve to shift outwards if…
a) price increases
b) price decreases
c)the price of a substitute falls
d) the price of a substitute rises.

2.A decrease in income should:
a) Shift demand for an inferior product outwards
b) Shift demand for an inferior product inwards
c) Shift supply for an inferior product inwards
d) Shift supply for an inferior product outwards

Answers under photo…

ANSWERS!

1) D- The demand curve will only shift outwards because of non-price factors such as the price of substitutes. If the price of substitutes increases then people are more likely to switch and buy this product. For example; orange juice and apple juice are close substitutes and if the price of apple juice goes people more people will be attracted to buy orange juice.

2) A – if income decreases then the quantity demand of an inferior will increase as they have an inverse relationship. Supply is not affected by the income elasticity of a product.