In this particular case, the consumer’s real income has increased as a result of the fact that the price of both black and white televisions and coloured televisions have fallen. This means the purchasing power of the individual has increased, as they are able to consumer more goods at the same level of income. We can use this graph to further explain both the income and substitute effect. As the price of Black and white and colour televisions fall, the
c). The transfer price of an intermediate product that has an imperfectly competitive external market for the for the product exists when the transfer price of the intermediate product is given at the point at which the net marginal revenue of the marketing division of the firm is equal to the marginal cost of the production division at the best total level of output of the intermediate product, and the price charged in the external market is given on the external demand curve. DQ13) The advantages of cost plus pricing is that it leads to approximately the profit-maximizing price because firms usually apply higher markups for products facing less elastic demand than for products with more elastic demand. p This involves calculating the average variable cost of producing the normal or standard level of output , adding an average overhead charge so as to get the fully allocated average cost for the product. The disadvantages for cost-plus pricing is that it may be very difficult to
“Discuss the extent to which a monopoly provider of transport will always increase economic efficiency” (20) Economic efficiency is where both allocative and productive efficiency occur, this is where price is equal to marginal cost and the least possible amount of scarce resources are used to produce the maximum output. A monopoly can refer to a single firm in a market or owning 25% and 40% of the market share. The traditional monopoly theory states that there will be productive and allocative inefficiency in the market since, the firm will hold back supply to gain a higher price. It will not produce where average revenue meets marginal costs. In terms of resource allocation this may mean that demand is not fully met by supply.
Section one was about Highly Competitive Markets. There are two types of highly competitive markets: those with perfect competition and those with monopolistic competition. I learned that perfect competition equals more competition and pure monopoly equals less competition. The only difference with the two is that sellers offer different, rather than identical, products. Section two was about Imperfectly Competitive Markets.
So price gauging may not be easily defined but it does mean something to those it affects. The Cause of Price Gouging Demand is actually the cause of price gouging, usually when something out of the ordinary occurs. The law of demand states that “if the price of a good increase, holding other
As incomes rise we consume more of normal goods such as colour televisions and less of inferior goods for example black and white televisions. As the price of both types of televisions fall the demand for both of them increases as stated by the law of demand. Price is determined by market forces; namely demand and supply. From the diagram bellow we can see that as price falls the budget constraint pivots out from BC1 to BC2 and consumption of both types on televisions increases from A1 to A2. This is because as price falls consumers can afford more goods as their real incomes increase and they feel richer.
a. The MRS and the MRT are not equal. b. The budget line is steeper than the indifference curve at the current consumption level (Y is on the vertical axis and X is on the horizontal axis). c. The consumer’s total utility would increase if he/she chose consumption such that MUX increases and MUY
Balance of payments is the difference in total value between payments into and out of a country over a given period. An appreciation means an increase in the value of a currency, and is worth more in terms of foreign currency. One impact of an appreciation on the current account is that exports are more expensive, so there is a fall in exports. Imports are cheaper so imports increase, creating a bigger deficit on the current account. This means that a strong real may lead to a worsening of the balance of trade – much depends on the value of price elasticity of demand for imports and exports.
The concept of cross elasticity of demand can be used to measure the presence of close substitutes for the product of a monopoly firm. If the cross elasticity of demand is greater than one, then the demand that the monopoly faces is elastic with respect to substitute products, and the firm has less control over its product price than if the cross elasticity of demand were inelastic. In other words, the monopoly faces competition from producers of substitute products. 22-2 Discuss the major barriers to entry into an industry. Explain how each barrier can foster monopoly or oligopoly.
First, if the government increases its purchases but keeps taxes constant, it increases demand directly. Second, if the government cuts taxes or increases transfer payments, households’ disposable income rises, and they will spend more on consumption. This rise in consumption will in turn raise aggregate demand” (Weil, 2008, para. 4). Consumer income has a huge effect on aggregate supply and demand just as the aggregate supply and demand can affect consumer income.