Why is it that a profit maximizing businessman would always raise prices when facing an inelastic demand curve but might or might not raise price when facing an elastic demand curve? Explain and justify your answers in detail. Elasticity and profit maximization behavior When facing an inelastic demand curve‚ a profit maximizing businessman would always raise price because increase in price will bring about increase in total revenue. On the other hand‚ when facing an elastic demand curve‚ he might
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Price elasticity of demand measures the degree of responsiveness of quantity demanded of a good X to a given change to a price of itself‚ ceteris paribus. Price elasticity of demand is calculated by dividing the proportionate change in quantity demanded by the proportionate change in price. When PED is greater than one (PED > 1) demand is said to be elastic When PED is between zero to one (0 > PED > 1) demand in said to be inelastic When PED is equal to one (PED > 1) demand is said to be unit-elastic
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(Pepsi &cola) Pcola Qdcla Pppsi cheaper‚Ddpepsi - Complimentary Goods : (car &fuel) Pcar Qdcar Ddfuel Theory of Supply The behavior of a sellers Definition of Supply Law of Supply - +ve relationship (P & Qs) -P Qs (ceteris paribus) -P Qs (ceteris paribus) Determinants of Supply -Influenced by its price -Movement along Ss curve -2 types of movement: a) Expansion b) Contraction Other non-price factors: a) No. of Sellers: More seller‚ Supply (Ss) b) Technology: Tech.
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Principles of Macroeconomics‚ 9e - TB1 (Case/Fair/Oster) Chapter 1 The Scope and Method of Economics 1.1 Why Study Economics? 1 Multiple Choice 1) Which of the following is NOT listed in the book as a reason to study economics? A) to learn a way of thinking B) to understand society and global affairs C) to be an informed voter D) to learn how to make lots of money Answer: D Diff: 1 Topic: Why Study Economics
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Computer chips are inputs in the production of computers. Because of the decreasing costs of inputs‚ the supply of computers increases. This relates to the law of supply where there is a direct relationship between the price and quantity supplied‚ ceteris paribus. The market supply curve is the horizontal summation of individual supply curves. Therefore there would be a rightward shift in the supply curve for computers from S to S1‚ resulting in higher quantity‚ lower price of computers and forming a new
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Price Elasticity of Demand (PED) The price elasticity of demand (PED) of sex tourism in Amsterdam is less than 1 and demand elastic. This shows that an increase in price would result in a more than proportional decrease in quantity demanded‚ ceteris paribus. The diagram on the left illustrates that the consumers are price sensitive; an increase in price from P2 to P3‚ results in a fall in demand from Q2 to Q3. As mentioned earlier‚ sex tourism is the subset of leisure or business travel. Since
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A PROJECT REPORT ON SUPPLY AND DEMAND ANALYSIS OF “the INDIAN COTTON INDUSTRY” SUBMITTED TO: PROF. SWAHA SHOME SUBMITTED BY: KUMAR SHIVENDRA 10BSP0704 PRAVESH KUMAR KHANDELWAL 10BSP1160 SUMIT PAUL 10BSP0529 Table of Contents Type chapter title (level 1)1 Type chapter title (level 2)2 Type chapter title (level 3)3
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Meanings and Definition of Demand: The word ’demand’ is so common and familiar with every one of us that it seems superfluous to define it. The need for precise definition arises simply because it is sometimes confused with other words such as desire‚ wish‚ want‚ etc. Demand in economics means a desire to possess a good supported by willingness and ability to pay for it. If your have a desire to buy a certain commodity‚ say a car‚ but you do not have the adequate means to pay for it‚ it will
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quantity of a good demanded in a given time period increases as its price falls‚ ceteris paribus meaning nothing else changing. On the other hand we have the supply. The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period. The law of supply explains that the quantity of a good supplied in a given time period increases as its price increases‚ ceteris paribus. Quantity‚ supply and demand can be represented graphically as functions. The point
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as a slope rising upward from left to right‚ since product price and quantity supplied are directly related (i.e.‚ as the price of a commodity increases in the market‚ the amount supplied increases). This relationship is dependent on certain ceteris paribus (other things equal) conditions remaining constant. Such conditions ... (100 of 193 words) Money Supply - In economics‚ the money supply or money stock‚ is the total amount of monetary assets available in an economy at a specific time.There
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