Cross elasticity of demand (XED) measures the percentage change in quantity demand for a good after a change in the price of another. For example: if there is an increase in the price of tea by 10%. and the quantity demanded for coffee increases by 2%, then the cross elasticity of demand = 2/10 = …
Demand for labour is a derived demand. This means it depends on demand for the product the worker is producing. If there is an increase in demand for visiting coffee shops, it will lead to an increase in demand for baristas (people who make coffee) The demand for labour will also depend on labour productivity, …
Derived demand occurs when there is a demand for a good or factor of production resulting from demand for an intermediate good or service. Example – mobile phones and lithium batteries The rise in demand for mobile phones and other mobile devices has led to a strong rise in demand for lithium. Lithium is used in …
A key factor in determining inflation is people’s expectations of future inflation. If firms and consumers expect future inflation then it can become a self-fulfilling prophecy. If workers expect future inflation, they are more likely to bargain for higher wages to compensate for the increased cost of living. If workers can successfully bargain for higher …
The shut down price are the conditions and price where a firm will decide to stop producing. It occurs where AR <AVC The shut down price is said to occur, where price (average revenue AR) is less than average variable costs (AVC). At this price (AR<AVC), the firm is making an operating loss. The total …
Readers question: Please tell me some products for which equilibrium price is not favourable for some producers and consumers which invite the state to impose price restriction. The equilibrium price is the price determined in a free market; the price determined by the interaction of supply and demand. Under what conditions could this market price …
Supermarkets and other retailers often seek ways to increase the price without losing customers. They have a few different options, depending on the good and its price elasticity of demand. In recent months, many supermarkets have managed cost increases by shrinking the size of the packet. Prices stay the same, but the price per gram …
The aggregate demand curve (AD) is the total demand in the economy for goods at different price levels. AD = C + I + G + X – M If there is a fall in the price level, there is a movement along the AD curve because with goods cheaper – effectively, consumers have more …