Assignment 1 Essays - Economics, Economy, Microeconomics, Demand

Assignment 1 5) Represented by the demand curve on a graph, the law of demand is an important law in microeconomics. The law holds that the price of a product is in correlation to the consumer demand of it; as the price increase, then the demand for that specific product decreases and because of this the demand curve on the graph always shows a downwards slope. However, this only happens if there is no change to the consumer's income, taste or preferences, number and also price of substitutes or future price expectations. If any of these assumptions are changed, then the curve on the graph can drastically change as well where: If the number of people buying a product increases, then the demand for it increases, shifting the curve to the right, if it decreases, then it would shift to the left as the demand for it decreases. If there is a change in the taste of a consumer as a result of outside influence like fashion, weather or even the reputation of the product, then it affects the curve just as consumers would be less likely to buy and for which the demand decreases for winter clothes in the summer. The expectation of a consumer about future events or influences can affect the curve on the graph either negatively or positively. For example the demand for a product will change if its price were to either increase or decrease in the near future. A consumer with a higher income is more likely to purchase more number of products than a consumer with a lower income. Therefore, the income of the consumer plays a role in shifting the demand curve. The prices of other products that share similarities with a certain product affect the demand curve as well because if there is a cheaper substitute for a certain product, then there is a higher chance of consumers going for the cheaper product. 7) The market, for a helpful demeanor will not be adjusted if the company sets a coupling esteem rooftop, which is when cost is required above an agreement, or a coupling esteem floor, which is the cost required under an adjustment. 1. There will be a flood when unsold supply needing to be sold exists in a firm with a coupling esteem floor 2. In presence of a coupling esteem rooftop, there will be a demand that cannot be met because the firm/supplier lacks the supply needed. The amount of goods exchanged will be, at a certain cost, the lesser Qs or Qd, making the black market for that product. Therefore, because of the price controls present in the market, firms do not make their long run products innovatively as it doesn't have a chance at an increased profit 8) In a specific product, the difference between the percentage that its price changed over the percentage of demanded quantity is defined as the elasticity of demand where the elasticity is classified as follows: - Result greater than 1, then demand is "Relatively Elastic" - Result less than 1, then demand is "Relatively Inelastic" - Result = 0, then demand is "Perfectly Inelastic" - Result = 1, then demand is "Unit Elastic" - Result is infinite, then demand is "Perfectly Elastic" 12) There are conditions for esteem isolation to happen and some major ones are as follows: Condition 1 If by chance the rivalry in the market is flawless, and because this would regard disengagement remarkable as it would have no impact on the cost of the individual producers, there must be some sort of damage done to the market. This is essential if the firms want to have the ability to produce rather than pay the market price. Condition 2 Being able to split the market, keeping them separated in their specific ranges seeing that it is hard to trade a merchants products section by section is something the isolating supplier must have. Furthermore, since stock can be bought in a more affordable market, among business divisions there must not be any spillage. Some obstacles in business areas can be: 1.Geographical, where companies sell stock outside of their countries much cheaper than they do inside just to make more money like when the east European Communist countries admissions to the west costed less than the ones in their own markets. 2.Temporal, where time