TAYLOR’S BUSINESS SCHOOL
Taylor’s Business Foundation
MARCH 2010 INTAKE
ECONOMICS I (ECNF01)
(Tutorial Group -1.7)
The price elasticity of supply is to determine how much the quantity supplied of a good responds to changes in price. Price elasticity of supply depends on the flexibility of sellers to change the amount of the product they produce. In markets, time period is being considered of the key determinant of the price elasticity of supply. As usual, supply is more elastic in long run than the short run period. Over short run periods of time, a firm cannot change their systems to produce more o less of a ...view middle of the document...
Must make the people believe rightly or wrongly that competitors’ brands are inferior. This will let the firm to raise its price more than its rivals with no significant fall in sales. There will be only a small substitution effect because consumers have been believe that there are no other close substitutes product. The other concept of elasticity is to decide the pricing strategy by using expectation of future price changes. If the demand of a product is elastic, the price fall of the product will become in a great increase in quantity demanded. Then, the business has to produce a big amount of an elastic product and sell them at a lower price and gain larger income. For an example, Max wants to start a business by selling food. He ordered many types of food with a limited price to sell. When he sells RM 3 per food, and the income he gets is low. Then, he came up with an idea by buying a big amount of the food he ordered from supplier, and sells them with a lower price compared to others.
The change in technology helps to improve the amount of the products with a little resource. For an example, by using the improvement of technology, it reduces the cost and little amount resources needed. Which means the technology helps to produce more though the resources are little. Not only that, the profitability of goods in joint supply. At times, when one good is produced, another good is also produced at the same time. For an example, the price of a lamb will lead to a higher quantity of lamb supplied. At the same time, more wool will be produced, depicted as a rightward shift of the supply curve of wool. The following reason is a decrease in cost production. The lower the cost of production, the more profit will be made at any price. If the raw materials are cheap, production cost will be low and thus supply will increase. For an example, a decrease price of a butter. Butter is the raw material for bread. When the price of butter becomes cheaper, the cost of production of bread decreases and sales for the bread rises.
Price floors are the minimum price which set above the equilibrium price fixed by the government. The supplier will earn more revenue with higher selling price and attract people to join the market, however it will deter the consumers from buying as they need to pay more for the good or service. Surplus occurs when the quantity supply is more than the quantity demanded. To prevent the price from increasing higher and higher, the government enacted the price floor. However, the suppliers produce the amount of supply greater than the consumer quantity demanded. As a result, surplus occurs at this time. The total revenue which earn by the supplier will be lesser as the price controlled by government. For example, bread is an example which is under price floor. The government fixed the minimum price to...