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# Short answers - Coursework Example

Summary
If a tax is placed on the seller of a good, then it depends that whether the seller will bear the complete tax burden or whether he will pass the whole or partial of the tax burden to the consumer. If the product’s demand is highly elastic then a small increase in price will…

Download file to see previous pages... So under such situation the seller will pass the entire tax burden on the consumer and will remain unaffected himself.
If the price elasticity of demand (PED) of a product is 0.75, then it means that the product has an inelastic demand. This means a percentage change in price is not followed by a significant change in quantity demanded. If the firm decides to increase the price by 20 % then quantity demand will be negligibly affected and the total revenue will increase.
Total revenue increases if either price increases or QD increases. Here price is increasing by a greater proportion then the decrease in QD, therefore the overall total revenue for the firm will also increase.
The above shows that after the price change, the marginal utility per dollar spent on pretzels is higher than the marginal utility per dollar spent on beer. Under such circumstances the consumer should spend more on pretzels and less on beer. He should continue to do so until the marginal utility per dollar spent on both the goods become equal.
If by hiring additional labor the total output increases with the decreasing rate, then the labor can said to have diminishing returns e.g if a firm hires 4th unit of labor, then the total output increases by 10 units. However when the firm hires 5th unit of labor, then the total output increases by 8 units only. So under such situation the total output is increasing but with a decreasing rate, this is known as diminishing returns. Similarly if a firm currently has 4 labors and they were producing 300 units per day. Now if the firm hires 5th unit of labor, but they manage to produce only 270 units per day, then this is known as negative returns, as the total output decreases with additional labor.
The good produced under perfect competition are homogenous i.e goods of an individual firm is exactly identical to the goods of the other firm, they are perfect substitutes. So if an individual firm tries to charge a higher price on the ...Download file to see next pagesRead More
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