To what extent is Price elasticity of demand useful in a companies planning decisions?
To what extent is PED useful in a companies planning decisions? Price elasticity of demand is the responsiveness in demand to a change in price of a good. A firm can benefit from identifying a certain good's elasticity because if they can recognise that a good is inelastic, as shown on the diagram to the right, the demand will not be majorly effected by the change in price. The price elasticity of demand depends on several factors. The most important factors are whether the product concerned is produced by a monopoly industry or by a competitive industry structure where there exist many substitutes. For example if say in a mobile telephone market there exist many companies competing and customers can switch to other companies with little switching costs then the demand for the product will be most probably elastic. However, if there is considerable switching costs then the demand will be inelastic. In contrast if say Railway Company provides services say in peak periods then with little competition from other railway companies and there exist little choices for such services the demand for rail services in peak periods will be inelastic. However, in off peak periods the demand for rail services becomes elastic because the customers can use other modes of transport if the prices are high and they have more choices in off peak periods. The other factor, which affects
There's no such thing as a free lunch
Allison Meyer Mrs. Barber Economics Period 2 20 January 2010 "There is No Such Thing as Free Lunch" "There is No Such Thing as Free Lunch," although is a cliché statement, is true. Nothing comes without a price, although whether the price involves money or not, is still there. Corepower Yoga, off Kipling and C-470, offers one free week of yoga to new time customers. The yoga is unlimited for the week and has no strings attached such as continued membership. Although the ad is labeled as free, and monetary it really is, due to trade-offs, benefit/cost analysis, and comparative benefit/cost analysis the free week of yoga comes with a price. The definition of trade-offs is giving up something to get something. Getting a free week of yoga at Corepower Yoga is great, but what if a different yoga center is better? Corepower Yoga does many hot yoga classes. This means that the room will be heated up to one hundred and five degrees and the humidity turned up to fifty percent. This could create a lot of discomfort and strain to new yoga users that they are not ready for. In addition, there are only about six classes a day, so the timing could not be right, considering there is a gap of classes between the times of twelve and four. These things could be wrong for a customer making the trade-off a costly thing. Another cost would be whether yoga is worthwhile or not.
Essay: Discuss whether the Basic Economic Problem will ever be solved
22/09/09 'Discuss whether the Basic Economic Problem will ever be solved ' The Basic Economic Problem is that the resources we use on a day to day basis are scarce. These resources are called 'economic goods', such as oil, land, steel and coal. There are also resources which are not scarce; as they are plenty of them and we call these 'free goods', such as food, water, air, and clothes. Due to the problem of scarcity of economic goods, choices have to have made every day everywhere, at all levels of society and business, this is what we call opportunity cost. Regarding the basic economic problem, we are left to discuss whether it will ever be solved, and we will no longer have scarcity and the need to make choices or if resources will eventually run out and we will have to do without or find and produce alternatives. There are both arguments for and against the issue, I will discuss both and come to my own conclusion. The main argument for, the basic economic problem will be solved is that we are currently, as always looking for alternatives for scarce resources, for example we can use coal instead, where there are huge amounts of reserves all around the world and it would be available for a lot less than the price of oil. There is a question, if the northern countries in the world can survive without oil, as they themselves have little reserves, therefore are having to
Explain the possible impact of a world-wide recession on the components of the circular flow of income for a small and open economy such as Singapore.
Song Teck 023A 4a.) Explain the possible impact of a world-wide recession on the components of the circular flow of income for a small and open economy such as Singapore. [10m] The circular flow of income for an open economy is a model that shows the flows of goods and services and factors of productions between firms and household and in the process injections and withdrawals are made by the government and the rest of the world. This model shows that household provides the factors of production for firms who produce goods and services. In return the factors of production receive the factor payments (such as wages, dividend, and profits) which are in turn spent on the firm's output. The circular flow of income can be expanded by injections (addition to the circular flow which does not come from the domestic expenditure of the household in the form of investment, government expenditure, export revenue) and reduced by withdrawals (any part of income not passed on within circular flow of income in the form of savings, taxes, imports). Being a small and open economy, Singapore have place a strong emphasis on export orientated growth due to our small domestic market, thus resulting in a strong dependence on export revenue to sustain our economic growth. Moreover, with limited domestic investment and the openness to international capital flow, we are more dependent on foreign
'The trade deficit on goods in the first three months of the year was £7.1bn.' Explain the meaning of this statement.
Bernice Berschader 'The trade deficit on goods in the first three months of the year was £7.1bn.' (a) Explain the meaning of this statement. The above statements states that between January and March 1999 the UK lost £7.1 billion on trade, as a result of a trade deficit or current account deficit on the Balance of Payments. A Current Account deficit is where imports into a country exceed exports. This leads to a disequilibrium of injections and withdrawals. Withdrawals from the circular flow of income exceed injections into the circular flow of income. Though the current account consists of 4 elements, visible goods, invisible services, net income and investment income, the statement above discusses the deficit of an element of the current account, the visible goods element Even though a current account deficit results in the value of imported goods exceeds the value of exported goods, the demands for exports and imports will not be affected in the short run due to the Martial Lerner Conditions. Though eventually this will result in the foreign currency price of UK exports to decline, it will take some time for countries to react to these changes. In the short run the volume of exports will remain the same before it increases as a result of devaluation in the long run. This is illustrated by the J-Curve effect below. (b) Examine the possible causes of
How can inflation be reduced?
How Can Inflation Be Reduced? Inflation is a persistent rise in average price level over a year, it is measured through CPI (Consumer Price Index). CPI takes a basket of goods ,which are weighted due to expenditure in a household budget (so you spend more money on food then shoes therefore food has a higher weight). CPI then looks at how the prices have changed and dictates a rate in accordance to the statistics. Inflation usually carries negative connotations as it usually comes in conjunction with economic instability therefore many different methods have been devised in order to avert the problems of inflation and reduce it. An example of high inflation which was reduced is in Britain. In the 1970's inflation was phenomenal and peaked at over 20%, through successful monetary policy however this was mitigated. By raising interest rates it reduces the growth of aggregate demand it encourages saving (which would stifle consumer spending and investment) as well as reducing disposable income. Monetary policy is a proven technique used to reduce inflation. Favoured by the US and UK it looks at the modification of interest rates in order to control inflation (and reduce) this is know as tightening monetary policy. Monetary policy is the control of money supply by the central bank (so in Britain it is the Bank of England and in the US it's the Federal Reserve). Inflation can
DISCUSS THE ALTERNATIVE POLICIES A GOVERNMENT MAY USE TO IMPROVE ADEFICIT IN THE BALANCE OF PAYMENT
DISCUSS THE ALTERNATIVE POLICIES A GOVERNMENT MAY USE TO IMPROVE ADEFICIT IN THE BALANCE OF PAYMENT The deficit in the balance of payment means import bigger than export in the record of transaction in one economy to the rest of the world. The deficits mainly occur through various reasons such as: structural problem, exchange rate position, excess economic demand etc. hence the alternative policies could adopted to reduce this problem. First of all, the structural problem which indicate the products non-competitive, low quality or high price, and this problem will lead reduce in export, and effect the deficit in the balance of payment. In order to tackle this problem the supply side polices has been used, such as reaching and develop the new technologies etc. Doing research in previously experiences, solve self-problem, in order to enhance the quality of the products to make the products more competitive. And reduce the cost of production to influence the price goes down. However, the supply side policy is a long run policy, which may take long time to achieve the result, and amount of money will be cost. Therefore there will not be effectiveness in the short run. Secondly, the exchange rate position is directly affect the export and import. When the exchange rate high, it will be hard to export, because the export become more expensive, the importer may choose other
Comment on the statement that only carbon trading is likely to be an effective and efficient way of reducing C02 emissions.
Comment on the statement that only carbon trading is likely to be an effective and efficient way of reducing C02 emissions. Carbon trading is the process of buying and selling carbon credits. Large companies or organisations are assigned a quota of carbon that they are allowed to emit. If a company's emissions are less than its quota then it can sell credits if emissions are more then it will need to buy carbon credits. This may be effective in the way that companies will try to reduce their carbon emissions in order to reduce cost incurred from purchasing extra carbon credits. However this may not be effective if the opportunity cost for reducing their carbon emissions may be greater than if they spent the extra amount of money to purchase other company's carbon credits. Therefore there will not be much of a change in a company's emissions. Therefore this will only be effective if the government enforces to a certain standard as if they do not then company's may disregard it and continue polluting. "Developing countries would face a lower burden in reducing emissions than developed countries". This is because developed countries have more industries such as steal which require huge amounts of carbon to be exerted into the atmosphere, whereas developing countries won't have many of these industries and it will be easy for them to stay below their quota and may then even be
What are the current targets of macroeconomic policy in the UK and how can they be achieved?
Question 2 What are the current targets of macroeconomic policy in the UK and how can they be achieved? The United Kingdom is a highly developed country; it's the fifth largest economy in the world, and the third most populous country in Europe with a population of over 60 million people. The UK has a very sound macroeconomics system with four main objectives which helps sustain its status as a G8 member. The macroeconomic policy in the UK is influenced by two set of forces, the market by looking at supply and demand and those induced by government intervention. As a whole macroeconomic objectives in the UK are concerned with the overall performance of the economy. It relates to high economic growth, relatively stable price level and low and stable level of unemployment in addition the last goal is related to the balance of payments and the exchange rate may be distinguished, but it has no immediate or lasting advantage to the country of its payment position. I will deal with each goal in turn. Economic growth is a desirable objective, it's the major cause of rising living standards its has been a dominant forces for industrial nations over 200 years. Even small differences in growth rates can lead to large differences in income per head due to the power of compound interest. Since the end of the 2nd world war the rate if economic growth has averaged 21/2 % per annum. The
What should the MPC do to ensure that inflation is kept within the 2% target?
"The voices which... tell us that the path of escape is to be found in strict economy and in refraining, wherever possible, from utilising the world's potential production are the voices of fools and madmen." These are the words spoken by John Maynard Keynes during the most tumultuous period of the Great Depression. It is clear to me that the monetary policy committee (MPC) of our day are resolute in not repeating the same mistakes as those 'fools and madmen' who failed to heed Keynes' advice in the past. The Governor remarked in the August 2008 foreword that the world stimulus package has been 'extensive'. At home, the MPC announced their own plans of 'asset purchases totalling £175 billion' and keeping the interest rates 'at almost zero' (0.5%). The objective of this plan is fairly straightforward: by increasing the supply of money, the rate of 'nominal spending' should also increase, which in turn, would result in a higher level of aggregate demand (as consumption makes up 65% of aggregate demand) and finally result in the inflation rate meeting the 2% target. The reason behind the interest rates being kept at 0.5% has also been an attempt to boost consumer spending as the public would be required to pay less in mortgage interest repayments, and therefore, have more money to spend. Moreover, they would also be less likely to keep the money in banks accounts due to
