Microeconomics

It is a cardinal truth that, often in an economy, the outcomes of the unregulated market act against the public interests. In such a situation, people often seek the help of law and, resultantly, the government authorities intervenes in the process and control or fix the prices in the market. By imposing a price ceiling on certain products or services the government fixes the maximum price that can be charged for that product or services.

A ceiling is effective only when it is set below the price which would otherwise emerge as the equilibrium price in the market. A recent example of such ceiling is the fixation of the price of gasoline by the United States Government. The effect of price ceiling can be analyzed through a demand-supply diagram as above. DD and DD are the initial demand and supply curves respectively. The equilibrium price of gasoline (say) is P and the corresponding quantity is OQ. Let us assume that the demand increases and the demand curve DD shifts to the right to D`D`.

In case of a free market scenario, price will automatically increase to P` to maintain the equilibrium of demand and supply. However, if the government intervenes in the process and exercises some kind of ceiling, the price will not be permitted to rise above P. Clearly there will be an excess demand and the supply will fall short by the amount QQ`. Rent Control and its Effects In case of a price fixation, where the price for a commodity is fixed below the equilibrium level, market forces of demand and supply are not permitted to operate freely.

Rent control is a unique example of such price fixation policy of government authorities in an economy. The best-known example of such price fixation is the ceiling imposed on the rents of houses in New York City by the United States government. This type of ceiling is used by the government authorities (especially in command economies) for rented houses. Rent control can prevent housing markets from reaching equilibrium in case when the rents are already set below the market equilibrium price.

Rent control limits the increase in monthly rental rates or establishes laws which are used to determine the ‘fair’ rents for housing. It keeps the rents lower than that would otherwise prevail in competitive market equilibrium. Such deliberate policy of controlling rents undoubtedly helps the lower-income groups of people who would otherwise have to spent a greater proportion of their income for renting houses. Figure 2: Room Rented in Thousands But it should be borne in mind that the policy of fixing the rents can often cause shortages in the supply of houses.

Suppose the market equilibrium rent per room in a certain city is $100, and at this rent, 4500 rooms are available. Now, let us assume that the local rent control ordinance impose a ceiling of $50 per room. Since the controlled rent is much below the market equilibrium rent, it would definitely create a shortage in the rooms available. As the price of rooms is now less, people would demand more rooms and, on the other hand, due to less profit, the land lords would be unwilling to provide much room.

From the above figure, it is clear that at $50 per room, the number of rooms demanded is 7000, while the number of rooms supplied is only 2000. Clearly the shortage arises from an increase in the number of rooms demanded from the quantity that would prevail at the equilibrium rent, and from a decrease in the quantity of houses supplied to a level below the quantity that would exist at the equilibrium level. Rent control makes the houses less expensive for the tenants.

To counter this policy, landlords decrease the quantity and often the quality of the rooms available which ultimately results in the shortage of rental houses. The only solution of such a crisis lies in some kind of non price allocation or rationing. Since the prices can not increase to ration a shortage during a ceiling period, some other means must be established to distribute available resources to those consumers who are willing and able to pay. Non-price rationing policy distributes the available resources on a basis other than willingness to pay.

There is a huge debate among the economists regarding this issue. Many people argue that non-price rationing gives the lower income group the opportunity to consume more of a product they would, otherwise, not been able to afford. While this is true in some cases, it should also be borne in mind that the lower income class is not always fortunate to obtain available supplies during a shortage period. A simple example of such rationing is a ‘first-come first-serve’ rule.

Available resources are distributed to those who are waiting in the queue. But people often choose not to buy the product or service if the gain they expect from it, is less than the price they have to pay plus the value of their time wasted and also the annoyance of waiting. Conclusion It is crystal clear from the above ideas that, in case of a price ceiling or rent control, there are always dissatisfied buyers, willing to pay more than the legal price to get the products or services they need.

In the long run, the market often transforms in to a zone of black marketing and illegal trading. It is beyond any iota of doubt that, the longer the period, the more destructive is the effects of ceiling; we have worst of both the worlds – higher price and smaller quantity.

Works Cited

• Block, W. Rent Control, The Concise Encyclopedia of Economics, The Library of Economics and Liberty,
• http://www. econlib. org/library/Enc/RentControl. html
• Hazlitt, H. What Rent Control Does, Economics in One Lesson

The model of monopolistic was a developed by Edward Chamberlain in the 1930’s and was mirrored by Joan Robinson at the same time. The theory of monopolist competition makes the same assumptions as the prefect competition model except that it assumes firms produce differentiated or heterogeneous products. Apart from this, it is assumed that there are a large number of buyers and sellers in the market, each of them being relatively small and acting independent, there are no barriers to entry or exit, firms are short run profit-maximizers and that there exists perfect knowledge.

By producing a slightly different product than its competitors, the firm possesses a certain amount of market power and would be able to raise prices without inducing a fall in quantity demanded. Thus, the firm would be a price taker. However, as the product is slightly differentiated and is produced by a large number of firms, small changes in price will lead to large changes in quantity demanded, as consumers will shift to close substitutes. Thus, although demand curve facing a firm in monopolistic competition will be downward sloping, it will be highly elastic.

Prices are set in tandem to the prices set by competitors with marginal differences. Branding and marketing mix may be used to differentiate the product but these are likely to prove ineffective. In the short run, the firm being a profit maximizer would operate at a price where MR=MC. However, for long run equilibrium to be achieved, two conditions will have to be met; profit maximization through selling where MC=MR and AR=AC, so that competitive pressures ensure that a firm cannot make a loss or earn abnormal profits.

Simply said, due to low barriers of entry, firms will be attracted into the industry by abnormal profits. This will increase supply and pull down AR, thus eliminating abnormal profits. Similarly, where abnormal losses are being made, the firms will move out of the industry, reducing supply, increasing AR and hence eliminating losses. Examples of industries that have a monopolistic market structure include the UK retail grocery industry, the hotel industry in Europe and the USA and the life assurance and pension fund industry. The reasoning for these industries being classified as monopolistically competitive are simple.

In each industry, there are a large number of buyers and sellers, each independent of each other (there are thousands of retail shops, pension fund management and life assurance services providers and hotels serving millions of people), there is near perfect knowledge with no industry secrets as such, barriers to entry are low (it does not take much to open a store in a particular locality, banks and asset management companies have now dwelled into pension fund management and life assurance and setting up a hotel or a lodge is relatively easy), the product produced are different from each other yet close substitutes to products of counterparts in the same industry (a hotel room is different from another room in the same hotel yet all one needs is a bed to sleep at night, it doesn’t make much difference if one buys groceries from the local retailer or the supermarket chain although the shopping experience will differ and a life assurance policy is a piece of paper only with competitive rules and pricing acting as a differentiating factor) and that all firms are profit maximizers.

Choosing to invest in futures instead of options brings along both advantages and disadvantages. There is the generally acknowledged strong positive relationship between the currency futures price and the conversion rate expected to prevail for any currency duo. Investing in futures at a given price, therefore, gives one a concrete basis for the upward or downward trends that are currently projected for specific currencies or commodities in the light of prevailing news or issues (Kolb, 2000, p.27).

Acquiring currency futures for hedging purposes enables one to gain out of such investment what one would be losing from the basis or the main transaction. In terms of gains when one has made the right choice, futures yield much higher amounts compared to options. Futures also are subject to less market volatility; their prices are relatively more stable throughout the trading hours of the markets. Also read about 

cryptocurrency advantages and disadvantages

Options are the instruments that are swept in more erratic fluctuations in the bourses. In the specific case of futures on the Japanese yen, there is the historical trend that has continually delivered futures prices that are lower than the spot rates for options. This makes the transaction costs of futures lower than those that apply to options. However, futures do not come with the same flexibility that options offer.

A futures contract spells out an irrevocable obligation to buy or sell currencies and commodities at the specified contract prices, and this comes as a disadvantage. It requires higher amounts of investments that would have to be used to buy the object currencies or commodities.

References

• Kolb, R. (2000). Futures, Options & Swaps. Malden, MA: Blackwell Publishers, Inc.

It ensures a firm to be proactive in anticipating and planning for market changes ahead of time. It ensures a business to be a leading edge and not a following edge. A complete marketing plan must provide answers to questions like; who is the customers, how the product gets to customers and the most effective method of Implementation. A good plan will direct to the expectation and time to get the results (Makeover, 2008). Everyone In the firm an predict what will happen or future company prospects. A company gets prepared for market opportunities and to remain health, always prepared for any rising problems.

It keeps a business ready to cope with unexpected events and identify the best market mix. Importance of business plan A business plan is a kind of road map for a company. It gives goals, visions and benchmarking for your business. It gets created with aims of persuading others to assist in achieving the set goals and vision. It should describe all the business concepts, principals, products, target markets, and also trends in the market amongst any others. It also outlines the financial budgets like sources of funds to start a business.

It gives the total cost of the business, the expected level of returns or profits. It provides an opportunity to check on reality of the business and give momentum to the business. A business through a plan can evaluate where the gap are, what is working and future projections of the and guidance to run the business smoothly. Business plan is like a calling card for the business. It should always be able to outline your purpose and your identity. Successes and failures are clearly highlighted in a business plan, therefore, giving mime to acknowledge and organism your work in a better way.

The peoples owning a business are made responsible and accountable to all happenings of the business giving flexibility and freedom to business owners. Conclusion While setting up a new business, one has to draw a convincing business and marketing plan. These two plans play a vital role in ensuring the business thrives to expectations. Business plans give financial planning while the marketing plan gives market strategies to find an excellent market for the products. When these two are put together, possibilities of success are extremely high. References Berry, T. (2004).

In order to accomplish their company goal -to become the world’s largest online retail store”-, it versified its operation to include the retailing of toys, electronics, music, and other consumer goods. Through this paper, we first aim to analyses the internal capabilities of Amazon as an organization and discuss a sustainable future trend for the organization to follow. The analysis which follows is aimed to first identify Amazon.com’s Internal strategic capabilities explained as ‘resources’ & secondly ‘competencies’ (which will be aimed to summaries the manner in which the Identified resources are deployed to effective use).

Resources

The ‘Resource Based View’ will be used s the strategic tool to hence sum up the firm’s Internal strategic capability. Strategic capableness of a firm would be defined as Its resources & competencies to survive and prosper in the business environment. We will first begin by identifying the tangible & intangible resources of Amazon. Com. Typically, its resources can be considered under the following broad categories.

Physical Resources

Amazon’s many fulfillment distribution centers were strategically located near the main airports of the cities it operated in.

Such choice of strategic location of distribution centers not only improved efficiency but also effectively erring the operating costs thereby enabling the company to offer lower prices to its customers. Differentiated Into two, Other non-tangible resources can be Internal non- material: continual enhancement of customer experience on the website through continuous Software and technology development External non-material – this included the positive image of the Amazon’s brand name as a result of a customer base running into millions and the company’s Associate Program.

Human Resources

Amazon always took a tactical approach to employing its staff. Amazon’s global work force comprised of 20,700 employees. Its top brass management included names such as Richard Dalzell (previously Vice- President of Wall-Mart) who bought in expertise in supply chain management, international retailing, data mining systems and merchandising & logistic systems. Other senior managers had been recruited from various companies such as Apple, Microsoft and Laddering, whom added value with their various skills & capableness to the firm.

The founder of Amazon, Jeff Bozos himself was a Princeton graduate with previous experience as the Senior Vice-President of D. E. Shaw, a Wall Street hedge fund firm. From which he exploited the Information he rendered about the incredible growth of the internet retail industry which was prelate to grow at a mammoth 23 per Month.

Financial Resources

By 2008, Amazon had a market capitalization of $29. 4 billion with its net profit growing from $190 million in 2006 to $645 million in 2008.

Amazon was also able to maintain a strong cash flow position to enable the company focus on its ‘Long term sustainable growth’ of the firm by investment in continuous technological innovation. It achieved by substantial increase in its working capital via offering shorter credit terms to its consumers and longer payment terms to its appliers with the value been typically 26 days. How Amazon has really deployed its resources, gives it unique capabilities that the competitors would find hard to imitate. This is primarily as the firm has resources that critically underpin competitive advantage that others cannot obtain.

Value chain

The efficiency of a firm does not just end on it possessing large capital, physical resources, good work force or an advanced technological platform but how they are managed and deployed. The below analysis is aimed at depicting how well Amazon has exploited its resources to command the market they are in. Another method of analysis I think as appropriate for this case study is the, The Value chain which describes the activities within and around the organization that help create a product or service.

It helps analyses the organization in terms of a set of activities which managers undertake to create value for its consumers. This analysis will help us conclude how well Amazon functions as firm to be competitive in the industry.

• Primary Activities: Are directly related to creation/delivery of product Inbound Logistics: Receiving, Storing and Distributing Inputs to product. Amazon tied up with numerous leading companies that offered their final goods and services to hem which could be sold through the Amazon forum. It added different brands on a worldwide level which helped the company gain popularity.
• Operations: Amazon’s frustration-free packing is the transformation of the final goods to a deliverable condition to the end user which created an image in the consumers mind as an initiative to be consumer friendly. Outbound
• Logistics: Distribution of Product to Customers. Amazon strategically placed their centers near airports and in larger cities as Products needed to be physically shipped to customers. They have done well in acquiring land in convenient locations and hence eve on transportation costs thereby benefiting the end consumer with lower prices on the end product.
• Marketing and Sales: Sales and Awareness of Product. Amazon sells their product through the Amazon website, retail websites and Amazon web services to their different customers. They sold shoes and handbags through a website called Endless. Com. They also launched their Jewelry and Watch stores in the I-J, German, France and Japan and launched its Office Supplies Stores in 2008. Other expansions included Automobile parts that were made available at a single destination which provided arts from all top brands; Software en Epola Store and PC Casual Gaming Store. Amazon made it clear that they are looking at customer convenience whilst selling their products. They made all their products available at a single destination or forum at relatively low prices. This also gave customers a wide range of selection which enabled them to compare and contrast different products and brands.
• Service: Enhance or maintain value of product. Amazon emphasized on quality service to customers. I nee always looked to alt I T ten easels AT customers Ana nonce create a product line based on customer needs rather than their specialization and revived after sale-services via email to keep them happy.
• Support Activities: Help to improve effectiveness and efficiency of primary activities.
• Procurement: Acquisition of resource inputs. Amazon is not involved in the actual production of the product.
• Technology Development: R&D, process/product development. Amazon always looked to innovate and test out new markets through continual investments in technology. This reduced costs and improved efficiency. An investment in R&D meant that it could add further value to the customer experience through recommendations of similar products and acting as a virtual legman which was available at the customer’s fingertips.
• Segmentation was also not required as each customer that logged in gave Amazon an idea as to which sector he/she is interested in. It also helped Amazon diversify to different markets with the introduction of Kindle, Amazon Web Services and Digital Content Offerings. An improving technology base reflected high growths and cost reductions annually. An emphasis on technology meant that Amazon always looked at long term benefits.
• Human Resource Management: Recruitment, Training and Developing skills of staff. Amazon focused a lot on recruitment. They brought in an experienced management team headed by Richard Dalzell who is highly qualified in several fields. They required managers with expertise in computer software and were recruited from companies such as Apple and Microsoft. This was essential as any website-based company requires a strong management team with expert knowledge and capable of satisfying the customer needs as well as maintaining a strong foothold in the market. Amazon did a fantastic Job in attaining the services of such experienced and qualified personnel which has been one of the key reasons to their success.
• Infrastructure: Formal planning, Finance and Structure of Organization. Amazon initially acquired finance from a private investment from Bozos and Silicon Valley funding. They also raised capital through an PIP. Technology plays a huge part as they are structured on heavy investments in R&D sector. Amazon’s infrastructure is fairly sound. They are a capital intensive company and the figures show that they are achieving high growth, sales and profit levels which enables them further investment and diversification opportunities.
• Generic Activities: Merging a Cluster of activities that benefit customers. Amazon business model is a cluster of activities. As Amazon does not assemble the final Product and simply enters into a contract with the brand that does produce it, it should primarily focus on satisfying customer needs with heavy sales, marketing schemes and after sale services. Technology and human resource management play an essential role in achieving these goals. Amazon has a successful Value chain which has laid the platform for future success as well.

Its weakness obviously lies with the fact that it doesn’t manufacture the goods directly but has to rely on various vendors for the end product. Such reliance can cause issues of dry supply for a product in high demand.

Amazon initially ventured out as a firm with an aim to become the world’s biggest and best online bookstore’ which it successfully achieved a few years after it was set-up. However in order to maintain a sustainable growth, a competitive advantage, became necessary Tort Amazon to expand ten Dustless Deanna online KICK retailing.

I nose Nellie teem in managing costs efficiently and achieve a competitor’s advantage over other aspiring firms As Amazon’s marketing activities spread quickly across the world, the intention level increase as well. In order to survive and keep sustaining in the global market, it is pertinent for Amazon to enhance its capabilities and competitive advantages. Since the company was established in 1994, it has continued to expand and achieve some sustainable competitive advantages.

Value of Strategic Capabilities

One of the key factors needed to ensure an organization is successful in the global market is to provide products that add value to customers, which gives them an incentive to pay a premium price for its products. As long as customers feel they are aging advantage of the prices of Amazon’s products or services, which leads to consumer satisfaction and brand loyalty. The idea of Amazon’s customer strategy called ‘customer-centric’ consists of three kind of consumers – ‘Consumer customers, Seller customers and Developer customers’.

It is wise for Amazon to focus on the satisfaction of all these customer groups who add value to them on the basis of distinctive capability which competition is unable to offer. However, the company should not only consider the value to customers, but also it needs to ensure the organization’s activities have a positive investment return. When Amazon uses advanced technology to provide their customers convenience services, it is necessary for the company to take into account all the cost related to such an activity to enable it make financial projections.

According to the case, in 2008, the activities of investment and expenses were supported by Amazon’s shareholders due to positive returns being delivered to the market. Rarity of strategic capabilities If a company possesses a unique or rare resource, it is described absolute competitive advantage for this company. Amazon makes invests a fair bit to Research ND Development of Technology. It is the company’s belief that this emphasis on development of advanced technology will give them an edge over other organizations. Competition has found it difficult to imitate Amazon in this sphere.

However, the rarity could be temporary, especially under this modern business circumstances. Other organizations might figure out the same technologies and strategies eventually, which is why Jeff Bozos lays great emphasis on continuous innovation. Maintainability of strategic capabilities Possessing advanced technology and skills are not enough to sustain a company’s success. Strong maintainability ensures the creation of sustainable competitive advantages for a company. Organizations are able to differentiate themselves from their competitors by developing activities focused on customer needs.

For example, Amazon attracted its initial customer base via its online bookstore, and then went ahead to expand its product categories such as electronics, beauty and digital media. The speed of expansion of Amazon’s products globally via its international network created barriers to imitation by other competitors. Non-substitutability of strategic capabilities An important competitive advantage is a low level of substitution. Using the five forces model to analyze we observe that substitutes will create an effective threat when the price and performance of the substitute is more valuable for customers.

There are two dimensions in this area. Firstly, the company needs to consider possible product or service stimulation Trot a Deterrent Ministry. Amazon Autocue on online retailing, its direct substitute threats are mainly from “off-line” stores as Customers may prefer purchasing products from stores rather than waiting for few days for their goods in the post. Secondly, if the company struggles at the competence level, the organization could lose customers due to dissatisfaction .

Amazon has several direct and indirect competitors in the global market, a possible threat to the company is the possibility of these competitors offering customers better products or services and being more efficient in their services provided. Although widening its business beyond online book selling could increase Amazon’s strategic capabilities and competitive advantages in the global market to achieve sustainable success, it is not advisable to digress completely from the initial goal of he company to . The original vision of Amazon has in most parts been fulfilled, as it has a major market share in the online bookstore industry.

Nowadays, Amazon.com has an online marketplace for books with over 110 million primarily used all over the world and with millions of people Joining through its global websites

Recommendation & Conclusion

Amazon.com is currently one of the finest in its industry. It has created a bundle of resources & strategic capabilities that has enabled it to build multiple sources of sustainable competitive advantage. The company though needs to block opportunities for its impetuous like Microsoft aspiring to create a substitute who took advantage of Amazon’s ‘Rigidities’.

This should be considered as a potential threat which may account for their decrease in growth. Amazon’s emphasis upon technological innovation has enabled it to launch new sites that serve customers with specific needs. Strategic alliances & acquisitions have been a key method for the company to penetrate the market by offering a wider choice of goods and services. This strategic capability could be enhanced and developed further to gain a wider share of the market for sustainable competitive advantage & is thus directing the company towards a route of diversification.

We believe that focusing on Just online retail of books, would limit the growth of the company to only one product in a wide industry. However focusing on all with equal emphasis and with scope of enhancing the customer experience will give the company a positive platform of growth. It has already achieved the strong foothold in the online retail of books which it should endeavourer to consistently maintain but at the same time exploit other avenues which the wide industry has to offer

Management-to get to the profit I believe you have to have some good management behind a business. If you have a business and the management is not solid or unrecognized or nonexistent a business cannot run smoothly, therefore putting profit at risk for that business. Meaning the economic perspective cannot stand alone. 2. Customer Service- a business should always operate with the consumers in mind considering they are the ones who will generate profit for the business. If good customer service Is not involved in business, Just like good management, profit will not exist.

Meaning the economic perspective cannot stand alone. 3. Supply and demand- a business has to think are we supplying what the consumers want or is demanded in order to make a profit. If you have a business selling things that are not needed or not wanted then surely u will not have profit. Meaning the economic perspective cannot stand alone. 4. Inventory- a business should offer operate with Inventory In mind If there aren’t enough Inventories In a market people will go elsewhere to find it. Meaning the economic perspective cannot stand alone. . Marketing (image) – if a business cannot lure people in how is your profit going to be made. A business should also think about marketing has well or has a stepping stone to make a profit. Meaning the economic perspective cannot stand alone. A businesses general goal should be to make a profit but I do not feel that they should only operate with a profit In mind, because there are several factors that can get you to making a profit. A) Was Home Depot’s behavior an act of good ethics or simply shrewd business?

Imagine how an executive would argue in a meeting for the actions that the company kook. What objections might other executives raise? Believe that although Home Depot increased the price before hand I still see their behavior has an act of good ethics. The executives would argue in a meeting that In a time such as these that It’s Just supply and demand. They raised prices knowing that people would come in to purchase these materials to protect their investments. 1 OFF Unlike price gouging Tanat seems to napped rater an Incident or at ten last nor Ana the prices go up extensively.

Other executives might argue that they raised prices just at the right time to avoid really being looked at has price gouging. B) Would it make any difference in this case whether a decision maker takes a short -term or long-term view? Which view should the decision maker take? It would make a difference on whether a decision maker takes a long term or short term view. If you look at it from long term Home Depot made a smart business decision to increase their prices, they increased profits therefore in the future will be making more profits. In the short term they lost out on the profits that came from price gouging.

I think the decision maker should take the view of short term and that I believe that they kept ethical in their businesses. C) Does Home Depot (or any other Business) have a responsibility to help the citizens hurt by the hurricane? Whose responsibility is hurricane relief? I feel it’s good business to help citizens hurt by the hurricane all it can do is make that business look very good to the public but I feel it is not their responsibility to and in hurricane relief it’s the insurance companies and the owners responsibilities and if the situation is bad enough maybe the government

When more income is earned the demand for goods will shift to the right as more goods and higher levels of goods are demanded across the board. The budget line follows the law of demand as it shifts to the right showing an Increase In the quantity demanded of Items. This should not be confused with movement along the curve which Is caused by a change in price of a specific good. The purpose of a market system To allow government to control what is sold. To set constraints between buyers and sellers. To bring buyers and sellers Into contact * d.

To allow an organization to set prices In relation to their products. Rejoinder: In the market system an exchange of money for goods and or services takes place. A true market system sets the price through barter where the goods and services sell for the best price offered by the buyers creating equilibrium. For this exchange to take place the market serves as a meeting place for buyers and sellers. If the organization sets its prices there may not be market equilibrium and that can result in either a shortage or a surplus.

By specializing In the production of one good a company Is able to benefit from economies of scale which Increases their revenues. Attributes of specialization Include Reducing costs by creating a surplus. Saving time by allowing a worker to focus on one task* Encouraging workers to learn new skills. Encouraging workers to learn a number of different skills. Rejoinder: Specialization occurs when a firm is able to use the resources available to it to produce one product or family of products rather than trying to produce multiple goods and spreading the firm’s resources In many directions.

By focusing or concentrating on one task workers can achieve a higher level of training in that skill and become more productive. Firms always strive to produce only the amount of reduce they can sell to maximize their profits. The market system promotes progress by a, Creating incentive to continue to do things In the same way b. Restricting the amount of capital directed to specific goods. C. Slowly adjusting to changes In the In ten prices AT resources. A Provoking Incentive Tort technological advances.

Rejoinder: Because firms are competing for consumers’ dollars they always want to have the newest and latest product available which will be the most advanced in their category and appeal to consumers as new purchases. This provides incentive to stay ahead of the competition in developing new technology. If a firm continues without advancing its product the competition that do advance will attract their customers which is why firms dedicate resources to research and development.

Revenue increases when producer surplus increase* producer surplus decreases consumer surplus increases consumer surplus decreases. Rejoinder: Producer surplus is the difference between the minimum price the producer is willing to receive and what they actually receive. The surplus is their profit and the larger the surplus the greater their profit on the good. When it decreases they are receiving a price closer to their minimum acceptable. The consumer surplus measures what the consumer is willing to pay and its difference from the market price.

The closer to the market price the higher the consumer surplus because they are spending less than they are willing to and the less spent the lower the revenue will be for the good. An increase in the price of an inelastic good will decrease revenues decrease the percentage change in quantity less than the percentage change in price increase revenues* increase the percentage change in quantity more than the percentage change in price Rejoinder: Inelastic goods are necessities that consumers will continue to arches even when price increases.

This increases the revenue as more is paid for each good. The percentage change In price increases faster than the change in quantity which may remain constant. When we pay more for a good or service revenue will increase. Objective 1. 2: Explain market equilibrating process Productive efficiency is when the most valued combination of resources is used. The best technology is used. * when production occurs at a fair cost per unit. Fewer resources are left for production of other goods.

Rejoinder: Efficiency is when we get the most out of the resources that are used to produce a good. This means having the newest and unsurpassed technology to produce the least waste and the lowest cost. Unused resources due to the new technology can then be allocated to the production of other goods. The market is said to be in equilibrium when there is potential for a shortage but not a surplus there is potential for a surplus but not a shortage. Neither a shortage nor a surplus exists* the quantity sold equals the quantity purchased. Appliers are asking for a product. It is the market price where the two come together and all the goods produced are sold without leaving anyone demanding additional units of that good. The market will move too higher equilibrium price if the decrease in supply is greater than the decrease in demand* the increase in supply is greater than the increase in demand. The decrease in demand is greater than the decrease in supply. The increase in demand is greater than the increase in supply. Rejoinder: Price serves as a rationing tool for the demand of goods.

If the price is too high fewer of the good are demanded and if it is too low more of the good is demanded than is available. The market seeks a price where the demand for goods will equal the supply of goods. When supply decreases the price will ration the good y increasing till there is no excess demand for the good or shortage of the good. The intersection of supply and demand will be at a lower equilibrium price but a higher equilibrium quantity if supply is constant and demand increases. F supply is constant and demand decreases if demand is constant and supply decreases. If demand is constant and supply increases* Rejoinder: Supply and demand intersect at the equilibrium price. The demand curve is a straight line measuring the quantity demanded at different price levels. When supply increases the supply curve shifts to the right and more of the good is available. Since the demand curve remains constant the supply curve will intersect at a lower point indicating the increase in quantity.

When a price ceiling occurs the market price will be lower than the equilibrium price * the market price will be higher than the equilibrium price. The supply will exceed the demand buyers will not be willing to pay more than the ceiling price. Rejoinder: A price ceiling is the maximum price that can be charged for a good or service. It is imposed below the equilibrium price to allow those who would otherwise not be able to afford the good to purchase it. Placing it above the equilibrium price would make it ineffective ND unnecessary as the market price would then prevail.

Income elasticity increases when the number of complementary goods decreases when the number of substitute goods decreases when buyers’ income decreases* when buyers’ income increases Rejoinder: Income elasticity measures the percentage change of the quantity demand to the percentage change in a consumer’s income. If the consumer’s income changes disproportionably to prices it affects the demand for goods. If income decreases and the price of goods stay the same then fewer goods are affordable and more goods become elastic as they are no longer a necessity or must have to the buyer.