Managerial Economics
Q.1.0) For each of the following events, assume that either the supply curve or the demand curve (not both shifted). Explain which curve shifted and indicate the direction of the shift.
a.From 1950 to 1979 the wages paid to fruit pickers increased while the number of fruit pickers employed decreased.
b.During the same period the price of radio sets declined, while the number of radio sets purchased increased.
c.Housing prices are rising but more houses are sold.
d.Australian Airlines reduces its average plane fare by 30 percent in order to attract more customers.
Ans.
a) In this case the number of the fruit pickers has decreased while the wages of the fruit pickers has increased. Thus, the demand has not changed. The supply of the fruit pickers has decreased, hence, the fruit pickers supply has shifted to the left.
b) In this case the price of the radio sets declined while the number of radio sets purchased increased.
The illustration that accompanied Marshall's origi...
Perfectly inelastic demand
Perfectly elastic demandThis means the demand has increased. The demand curve has shifted to the right.
c) In this case the housing prices are rising but more houses were sold. The demand of the houses has increased. The demand curve has moved to the right.
d) In this the Australian Airlines reduces its average plane fare by 30 percent in order to attract more customers. The aim here is increase the revenue in the future. The supply is been increased to accommodate the increasing customers. The supply curve is moved to the right.
Q.2.0) Explain the meaning of elasticity? What are the different types of elasticities? What are the factors that affect each type of elasticity? Of what use are these elasticities to business?
Ans.
Elasticity is a measure of the responsiveness of one variable to changes in...