ECONOMICS FOR BUSINESS

Assignment 1

  1. Explain Demand and supply?

The theory of supply and demand is one of the fundamental theories of  and is the foundation upon which many other more elaborate economic models and theories are based. Supply and demand is crucial elements that directly affect resource allocation.

DEMAND  

Demand is the amount of product that a buyer is willing and able to buy at a specified price.

The “lower the price, the higher the quantity demanded and demand curves slope down” (Begg, D).

SUPPLY

Supply is the amount of product that a producer is willing and able to sell at a specified price.

The “higher the price, the higher the quantity supplied, supply curves slope upwards” (Begg, D).

SHIFTS IN A SUPPLY CURVE

If other things do not remain equal then the whole supply curve may shift its position. These other things might be the prices of other products, the costs of production, the tastes of the consumer, etc.

Elasticity

Elasticity is a tool that is used to describe the relationship between two variables. It is defined as

                                           % change in an independent variable

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 Elasticity = ∆

                                           % change in a dependent variable

While elasticity can be calculated and used for any two related variables there are four basic

Coefficients of elasticity used in principles of economics

 

OWN PRICE ELASTICITY OF DEMAND

This is a measure of the percentage change in the quantity demanded “caused” by a percentage change in price. Because the demand function is an inverse relationship between ...

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