Two Determinants Of Price Elasticity Of Supply Economics Essay

1556 word (6 pages) essay in Economics

5/12/16 Economics Reference this

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2A) Time period of analysis and availability of substitutes are the two determinants of price elasticity of supply. Substitutes’ availability means the comfort with sellers that can search replacement in production which shake the price elasticity of supply. The common law is product with a more substitutes is further responsive to changes of price. With more replacement offered, sellers can simply act in response to changes of price, for examples, the making of Burger King. It has many substitutes because the materials needed for making process can simply alter between dissimilar goods. The guy who sells chicken burger for Burger King can easily change to selling fish burger at the McDonalds. the price elasticity of supply is very elastic due to the amount of substitutes. However, time period of analysis means the longer the time period of analysis, the more receptive amounts are to changes of price. Brief periods do not consent to sellers the time needed to fiddle with their production decisions to price changes. Sellers require time to discovery materials used in the making of the stuff. For example, the supply of the Autocity is not too elastic for a period. Resources draw on in production is only just to change with other goods. However, if enough time given, resources can move between production, ensuing in a more elastic supply.

2B) “Degree to which demand for one product is affected by the price of another product” is cross price elasticity of demand. Marketers require to be familiar with the cross elasticity factors that have an effect on their products and competitors’ products. Pricing strategy is depends on five conditions. The first condition is inelastic demand.

The second condition is elastic demand which means that a price increase or decrease will not considerably subsequent to demand for an thing. Products are well thought-out to stay alive in a market.

The third condition is unitary elastic demand. It is a situation where a change in the market price of a good effect in no change in the total amount used up for the good within the market.

The fourth condition is perfectly inelastic demand. It is a situation that when demand for a product or service does not modify at all in reply to changes in its price. A good’s demand is well thought-out perfectly inelastic when that good’s demand does not change, regardless of the price set. Regardless of how large or little the price change is.

The last condition is perfectly elastic demand. This means that the consumer is willing to pay money for more and more even at that similar price.

These are the conditions that affect the price strategy. Those businessmen will increase or decrease the product price based on this condition.

3A) Three reasons of supply of products increase are production capacity, weather and production costs. If a company which selling furniture has a bigger productions capacity, supply of products will increase. For example, Mc Donald has a bigger store, its supply will increase. Besides that, if production costs decrease which will make more profit, supply of production will increase too. For example, production cost of car decrease, supply of car will increase. Weather, if product like fruit has better weather to grow, the supply of productions will increase. For example, product supply like durian will increase in a hot weather. But weather not often impacts the businesses’ operation such as auto supply stores or bookstores except under the most exceptional of state of affairs.

3B) “Price floors and price ceilings stifle the rationing function of prices and distort resource allocation.” was said by economists Price floors and ceilings are a kind of government involvement. It causes the market price either higher or lower than the equilibrium price where the resources allowance is expected to be efficient. Lower price creates too many demands and higher price causes too many supplies. First, the rationing function of prices is the simple equilibrium price where supply and demand meets. At this price the consumers who are eager and capable to buy the good equal the suppliers who are eager and capable to make at that price. Other words, rationing by queues, lotteries is not needed. Price controls change the price forcing either a shortage (price below equilibrium) or surplus (price above equilibrium) for that good. The shortage or surplus puts nervous tension on resource allocation in the affair that price floors are in position suppliers manufacture too much and allocated more resources to the production than otherwise needed. At a price ceiling, not sufficient resources are owed to the production of the good or service to get together demand because there would be a shortage.

5A) Decrease in demand means a decrease in the eagerness and capability of buyers to buy a good at the price which existing. The existing price is illustrated by a leftward shift of the demand curve. A fall in demand results in a fall in equilibrium quantity and a fall in equilibrium price. However, decrease in quantity demanded means decrease in the total quantity of goods which persons wish for and are capable to purchase. Differences between a decrease in demand and decrease in quantity demanded are decrease in demand would be determinants (causes the graph to shift left/right), but decrease in quantity demanded deals with $$$, price (doesn’t shift the graft). Decrease in quantity demanded is moving along upwards and leftwards in an existing demand curve while decrease in demand is a shift which curve to the left. Decrease in quantity demanded is brought about by a transform in price while decrease in demand is brought about by a change in prices of related goods, taste, change in income and others. This are graphs for decrease in quantity demanded and decrease in demand.

5B) The degree of responsiveness of quantity demanded of a good to a change in the income of consumers, ceteris paribus refer to Income Elasticity of Demand. For example like food and basic clothing. This is for survival i.e. necessities. The three degrees of income elasticity of demand are positive, negative and exactly zero. Positive means income elasticity is greater than zero and demand will rises as income rises. It is cause by normal good like food and clothes, and luxury good like branded clothes and luxury house. Negative means income elasticity is smaller than zero and demand falls as income rises. It is cause by inferior good like second hand goods. The exactly zero means income elasticity equal to zero and quantity demanded does not change as income changes. It is cause by necessity good like salt and rice.

6A) Consumer surplus is the variance between the overall quantity that consumers are eager and capable to pay for a service or good and pay the total amount. Good or service are for the demand curve and amount they pay mean the market price. The difference between what producers are willing and capable to supply a good for and the price they really obtain is producer. The stage of producer surplus is exposed by the zone overhead the supply curve and under the market price.

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6B) The definition of production possibilities frontier is a graphical representation of the possible outputs using two or more inputs arrogant that all inputs are used efficiently. A PPF can be used to make obvious a number of economic concepts, such as scarcity of resources (i.e., the fundamental economic problem all societies face) and opportunity cost. Most choice involves opportunity costs. In the graph, unattainable points refer to any points that lie outside the PPF. Inefficient points are points that lie beneath the PPF and positive to achieve. It also calls attainable points. It is not usually desirable. Besides that, when economy produces the maximum possible output with a given resources and technology, it will achieve productive efficiency. Points on that curve called efficient points.















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In the graph, point b which lies outside the PPF is the unattainable point. However, point A which lies beneath the PPF is attainable point. For example, they face the scarcity and have to made choice that involves opportunity costs. They face the scarcity of modal have to made choice to produce more wine that involves the opportunity cost, grain.

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