Economics for business PDF

Running head: ECONOMICS FOR BUSINESS
Economics for business
Name of the student
Name of the university
Author Note

1ECONOMICS FOR BUSINESS
Table of Contents
Discussion for Answer 1:...........................................................................................................2
Discussion for Answer 2:...........................................................................................................5
References:.................................................................................................................................8

2ECONOMICS FOR BUSINESS
Discussion for Answer 1:
In economics, demand and supply use as a basic tool to determine the market price of
a product. Demand concept also influences by the concept of elasticity (Coglianese, Davis,
Kilian & Stock, 2017). With the help of this concept, a firm can understand that whether it
can charge comparatively higher price or not. Comparative advantage on the side helps a
company to export and import products based on this theory.
The price elasticity for demand measures the degree of responsiveness regarding
quantity demanded for a particular product when own price of it changes significantly. The
value of own price elasticity for demand gives negative outcome to indicate opposite relation.
The value of price elasticity can be obtained as a ratio between percent changes in quantity
with percentage change in price (Olmstead et al., 2015). When the determined value remains
more than 1, it implies elastic demand curve. On the others side, when the value of this
elasticity becomes less than one then it implies an inelastic demand curve. To determine price
elasticity of demand, three factors play significant role. These factors are availability of
substitutes, time and necessity, which can be precisely as follows:
Availability of substitutes: When a product has more substitutes available in market, the
demand for it becomes more elastic. In this situation, a small increase in price can lead people
to purchase the substitute product. Therefore, demand in this situation will reduce
considerable due to a small increment of price (Burke & Abayasekara, 2018). On the
contrary, if the product does not have any substitutes, then the demand for this product will
not change by large extend due to change in price. For instance, if the price of one cup coffee
increases by E$0.25, consumers may shift their preference towards tea. This implies that the
demand for coffee is elastic.