Economics: Microeconomics Study Material

Economics
Microeconomics
3/31/2019

Economics 1
Contents
Question 1........................................................................................................................................2
Question-2........................................................................................................................................2
Question 3........................................................................................................................................3
Question 4........................................................................................................................................4
References........................................................................................................................................6

Economics 2
Question 1
If the demands of the product are elastic then the firm should reduce the prices of the products
because, in the elasticity of demand, a change in price will lead to the impact on the change in
quantity demanded. There is an inverse relationship, which means with the increase in price there
will be a decline in quantity demand and vice versa. The company should reduce the prices, as
this will help them to increase the demand for products that will help the company to attain high
profits (Kreps, 2019). These high profits are the motive due to which company operate its
business operations in the market.
If the demand is inelastic then there will be little effect on the change in the demand of customers
with the change in prices. Thus, the firm can increase the prices with the motive to attain a high
profit within the market. In this, an inelastic product is one that the customer continues to make a
purchase even after bringing the changes in the prices of the product.
Question-2
The supply of goods and services is elastic or inelastic can be determined by different key factors
that include stock, time, period, substitutes, and many others. Some of them are explained below
–
Time to produce: - The time, which is required by the company to produce the goods to respond
to the prices changes, is essential for determining the elasticity of supply. The time taken by the
manufacturer in response to the price can make the supply inelastic or elastic (Bade & Parkin
2015). For instance; the price of sunflower seeds is increasing due to more of people are getting
diet conscious. Then supply remains inelastic at the first, as it will take time to grow more of