Explain your answers. a. If a firm in the industry wishes to increase total sales revenue (ignoring cost considerations), will it raise or lower its selling price? Why? The selling price would only increase because the absolute value of -2.5 is 2.5 which are greater than 1 meaning it is elastic and an increase in price leads to a reduction in total revenue.
This is illustrated above, where the equilibrium price rises from P to P’ and the quantity from Q to Q’. (b) The substitution effect is closely related to the principle of substitution. (c) Answer (a) is incorrect because it causes an upward movement along the demand curve. Answers (b) and (d) cause the demand curve to shift to the left. (c) The distinction between an increase (or decrease) in demand and an increase (or decrease) in quantity demanded is vital.
If the price of both black and white and colour televisions falls, consumers buy more of each of them. Yet if consumers’ incomes rise, they buy fewer black and white televisions and more colour televisions. Show why these differences arise between these two types of goods. The ‘law of demand’ states that as the price of a good increases, demand for the same good falls , resulting in a downward sloping demand curve. This indicates an inverse relationship between price and quantity demanded as long as all other factors remain constant.
When the price of a good falls and the price of other goods and a consumer’s income remain the same, explain what happens to the consumption of the good whose price has fallen and to the consumption of other goods. Answer: When the price of a good falls and the price of other goods and a consumer’s income remains the same, there will be more consumption of a good and other goods. 10. If a consumer’s income increases and if all goods are normal goods, explain how the quantity bought of each good changes. Answer: The consumer must determine the quantities of movies and soda that make their marginal utilities per dollar.
EGT1: Task 309.1.2.08, Performance Task Element A: Elasticity of Demand (Ed) measures how responsive demand is to a change in the price of a good or service resulting in either elastic, inelastic, or unit-elastic (Roberts, 2013). An item is elastic when a percentage change in the price has a substantial effect on the percentage change of the quantity purchased, this relationship will be one that is inverse in nature. Simply, this responsiveness to change shows that if there is an increase in price on a good or service the result will be a reduction in sales of that good or service. If there is a decrease in price of a good or service, the result would be an increase in sales of that good or service. Elasticity is measured using a
Monetary policy is the use of interest rates to manipulate the level of aggregate demand in the economy and loose (expansionary) monetary policy is a reduction in the interest rates. This will result in an injection of extra consumption because it is cheaper to borrow money on credit cards and therefore allowing consumers to spend more which will cause an increase in aggregate demand (AD). Additionally, extra consumption will allow shops to gain more profit preventing “business failures.” Furthermore, mortgages will be cheaper and therefore consumers feel richer and there will an extra injection of consumption. AD will also increase due to an increase in investment, causing an increase in aggregate demand from AD1 to AD2 as shown below. However,
Pricing 4. Production The action plan brand managers Boyle and Warren should propose is to focus primarily on instant charcoal, as it is easier to compete when it comes to finding new customers against gas grilling. They should propose a price increase of 5% for all products. There should be no increase in production for the time being. There should also be increases in both promotion and advertising.
Why do Keynesian economists believe market forces do not automatically adjust for unemployment and inflation? What is their solution for stabilizing economic fluctuations? Why do they believe changes in government spending affect the economy differently than changes in income taxes? Keynes theorized that when unemployment raises the amount of goods that are in demand by countries citizens decreases and as these demands decrease the amount of output by the countries manufactures also decreases. As the demand for one product decreases it can cause a chain reaction lowering the demand for products needed to produce the first product.
a. Reduction in price will cause the contribution margin to decrease, thus, breakeven point will increase. b. Increase in Direct Labor cost will increase the cost and will cost the contribution margin to decrease, thus, the breakeven point will increase. c. Installation of new ventilating equipment produced depreciation (fixed cost) which will decrease contribution margin, thus the breakeven point will increase.
The elastic VS inelastic states that the law of demand depends by how much quantity demanded responds to a price change. When a price change causes larger change in quantity demanded then the price would be elastic. However when a price change causes smaller then the demand is elastic. The law of demand states that as prices raise the people would like to buy less and the quantity demanded falls. As the prices fall, the people would like to buy more and the quantity demanded increases.