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ECON1008 - Principles of Economics - Desklib

   

Added on  2020-03-07

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Running head: PRINCIPLES OF ECONOMICSPrinciples of EconomicsName of the StudentName of the UniversityAuthor note

1PRINCIPLES OF ECONOMICSTable of ContentsAnswer 3..........................................................................................................................................2Answer 4..........................................................................................................................................2References........................................................................................................................................5

2PRINCIPLES OF ECONOMICSAnswer 3a)Demand elasticity actually captures the consumers’ ability to adjust demand at differentpricing point. There is direct impact of price change on quantity demand as suggestedfrom the law of demand. It is generally computed as a percentage change in demand withto a percentage change in price (Mankiw 2014). The extent to which demand changes inline with price is not same in every situation and for every commodity. When change indemand outpace that of the change is price, then elasticity measure is greater than one. Incase of inelastic demand elasticity measure is less than one as here responsiveness ofdemand is less. For luxury items, a small change in demand induces consumers to changetheir demand largely. Hence, luxury items constitute elastic demand. Olive oil isconsidered as a luxury product as it is mostly used in restaurant or rich household in thenation. Therefore, the demand for olive oil is price elastic.b)In case of elastic demand, a small change in price leads to a much greater change inquantity demand. Revenue is the product of price and quantity. An increase in price islikely to increase revenue to the producers. Whereas decrease in demand in response torise in price, pushes revenue down. The revenue will move to the direction of dominatingforce (Varian 2014). With an elastic demand of olive oil, decrease in demand more thanoffset the price rise. Hence, producers in olive oil industry suffer from a loss of totalrevenue.Answer 4With a worldwide shortage of supply in olive production, the price of olive oil is skyreaching. However, Australian people are likely to remain unaffected and they are continuing

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