Economic Principles: Elasticity, Cost of Production, Market Power, Business Strategy

Running Head: ECONOMIC PRINCIPLES
Economic Principles
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1ECONOMIC PRINCIPLES
Table of Contents
Task 2: Elasticity.............................................................................................................................2
Answer 1......................................................................................................................................2
Answer 2......................................................................................................................................2
Answer 3......................................................................................................................................2
Answer 4......................................................................................................................................3
Task 3: Cost of Production..............................................................................................................5
Answer 1......................................................................................................................................5
Answer 2......................................................................................................................................6
Task 4: Market Power......................................................................................................................6
Answer 1......................................................................................................................................6
Answer 2......................................................................................................................................6
Task 5: Business Strategy................................................................................................................7
Answer 1......................................................................................................................................7
Answer 2......................................................................................................................................7
Answer 3......................................................................................................................................8
References........................................................................................................................................9

2ECONOMIC PRINCIPLES
Task 2: Elasticity
Answer 1
Holiday to Europe accounts for a higher elasticity as compared to a bag of rice. If the trip
to Europe becomes too costly then people might postpone the trip or plan their holidays to some
other destination. For rice however people can neither postpone nor substitute their demand and
therefore have a lower elasticity (Cowen & Tabarrok, 2015).
Answer 2
Electricity used has a comparatively higher elasticity as it has different alternative usage.
People can adjust their demand in various ways (Cowell, 2018). Weetbix on the other does not
have much alternative usage and hence, demand cannot be changed largely constituting a lower
elasticity.
Answer 3
Cross Price elasticity=
ΔQX
QX
×100
Δ PY
PY
×100
¿ ΔQX
Δ PY
× PY
QX
¿ ( 12000−10000 )
( 1.80−2.40 ) × 2.40
10000
¿ 2000
−0.60 × 2.40
10000
¿−3.33 ×0.240