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An equilibrium point of quantity is obtained when the two demand curves are drawn on a single graph. The inelastic demand for the veteran smoker clearly conforms to demand rule; when the price for cigarettes goes up, demand falls and vice versa. (See fig (3) on scanned document)
The government always increases the value added tax on cigarettes in order to reduce demand and also contain incidence of increased lung cancer due to smoking. Looking at fig (4) where the current equilibrium price is at three dollars and the quantity demanded is. When the price increases to six dollars, the supply curve shifts upwards and moves to left to create a new supply curve. This shift and movement show how the markets, specifically suppliers, are reacting to the positive change in price. The quantity demanded by the veteran smoker and the new smoker proportionately reduces. (See fig (5)).
The consumer that evidently changes there smoking behavior drastically is the new smoker. As per figure five, when the price rises to six dollars, the shift in supply curve form to causes the quantity of cigarettes demanded by the veteran smoker to reduce from as the supply curve moves upwards along the curve.
On the other hand for the new smoker, the shift in supply curve form to causes the quantity of cigarettes demanded to reduce from. Since, , it is justifiable to say that the new smoker reduces his or a rate of consumption as a result of increase in cigarette price. One can also say due to the fact that the veteran smoker is used to smoking a given number of cigarette packs, changing his or her norm due to price changes will considerably be negligible.
The burden of increased price, in most cases is transferred to the consumer in form of value added tax. Increased tax, will usually lead to increase in the cost of raw materials and in turn the producers and suppliers will want to transfer this cost to consumers in form of value added
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Think about whether farmers will use their soybean farms to produce more or less corn. Explain, in economic terms [e.g. supply determinants], why this is so. When the price of corn increase as a result of its being used as an alternative energy source, the supply of corn substitutes like soybeans will decrease.
The supply side constraints may push up the prices. Similarly elasticity of demand for the product acts as a limiting factor to sales. However, in real life situations, the elasticity of demand is governed by diverse factors such as branding, cross selling, value addition, creating new uses for the products, multi-level marketing, direct marketing, discount sales and online marketing.
(Alfred Marshall, Principle of Economics(1890))
In the words of Paul A. Samuelson, "price elasticity of demand indicates the responsiveness of quantity demanded to the changes in market price." (Anthony Samuelson, Foundations of Economic Analysis, 1947).
When we talk of product price, we mean market price. That is the price at which the product is sold to all buyers in the market. The quantity of a product that we purchase at a certain price is called the demand of the product. Price of a product and its quantity demanded are closely related in the sense that each of these has a bearing on another.
As a result of this general trend every time the price for diesel or petrol climbs up CD companies immediately try to bring their prices down.
Similarly, when the supply of raw materials important for a CD to be built becomes unavailable or expensive all CD companies are forced to push their prices up.
This paper illustrates that own price elasticity of demand is higher for goods for which consumers have readily available substitutes as in that case in case of very small changes in own prices, ceteris paribus, the substitutes become more attractive. Further, short-term price changes lead to greater sensitivity to demand compared to long-term changes.
he price of my product is increased as well as if a particular resource is scarce, will that provoke a scramble for that resource are answered by making use of the concept of elasticity. If we use more technical jargon to define elasticity, it would be that it measures the
The easier it is to swap, the more elastic the demand of such a product is (Mankiw 90).
Type of want is satisfied by product; if the product satisfies basic needs or necessities such as medical care, basic food stuff and housing, then the price elasticity of such
In this case, substitute goods generally refer to a pair of goods in which the consumers consider alternative. On the other hand, complementary goods are those that are used together; one item is usable only when the other item is