...insurance or pay a fine at tax time (Obama Care Facts, 2014). Before the enhancement of medical expense insurance, patients were presumed to pay health care costs out of their own pockets, which is known as the fee-for-service professional standard. Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid base, eventually leading to the development of Blue Cross organizations. The predecessors of today's Health Maintenance Organizations (HMOs) originated beginning in 1929, through the 1930s and on during World War II and beyond (Thinking Healthy History, 2014). Market Structure An oligopoly is a market structure in which a few firms overshadow. When a market is communally jointed between a few firms, it is said to be highly competitive. Although only a few firms dominate, it...
Words: 1577 - Pages: 7
...Market Demand The demand for a good or service is defined as quantities of a good or service that people are ready to buy at various prices within some given time period, other factors besides price held constant. And law of demand is the inverse relationship between price and the quantity demanded. It means the higher the price, the lower quantity demanded and vice-versa. A change of demand can be affected by two factors. First, the changes of price result in the changes in quantity demanded. In this term, change occurs only at the point in the curve. Curve line does not shift. Second, changes in the non-price determinants result in changes in demand. This led to curve shifts to the left or to the right. There are 5 factors of non-price determinants of demand. Here are: 1. Taste and preferences. There are many factors that trigger these factors include advertising, promotion, and even the government reports related to specific goods or services. 2. Income. Buying power is closely related to the demand of a product. Increased public income means demand also increases and vice versa. 3. Price of related products. -> Substitute or complementary products. 4. Future expectations. 5. Number of buyers. Market Supply Definition of supply is Quantities of a good or service that people are ready to sell at various prices within some given time period, other factors besides price held constant. The difference between demand and supply is the word sell for...
Words: 1492 - Pages: 6
...blog will discuss the market of tobacco products through the applications of economic tools and analysis. To analyse the market, we will examine the price elasticity demand and income elasticity demand of tobacco products the factors affecting each of these and the externalities caused by this product. Further, to explore further into the tobacco market, this blog post will discuss the theory of Rational Addiction, which contributes greatly to tobacco consumption. A. Elasticity of tobacco products Before analysing the elasticity of the tobacco market, it is important to know the fundamentals of elasticity. To start, elasticity refers to the degree of change of the demand or supply of a product in response to change in price of the product. The elasticity of products varies because consumers may find some products more essential than others. A good or service is considered to be highly price elastic if a price increase leads to a sharp change in the quantity demanded or supplied. Conversely, the demand and supply of price inelastic goods or services sees modest changes with any change in price. In most countries, the price elasticity of demand for tobacco products is fairly inelastic. This will be discussed further below. I. Calculating price demand elasticity To determine the price demand elasticity of a product’s demand curve, the following equation can be used. Elasticity, Ped = (% change in quantity / % change in price) If the elasticity value we obtain from...
Words: 1750 - Pages: 7
...food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April. 1. Compute the elasticities for each independent variable. Option 1 Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables: Q = Quantity demanded of 3-pack units P (in cents) = Price of the product = 500 cents per 3-pack unit PX (in cents) = Price of leading competitor’s product = 600 cents per 3-pack unit I (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarkets are located = $5,500 A (in dollars) = Monthly advertising expenditures = $10,000 M = Number of microwave ovens sold in the SMSA in which the supermarkets are located = 5,000 QD = -5200 – 42(P) + 20 (PX) + 5.2 (I) + 0.20 (A) + 0.25 (M) =-5200 – 42*500 + 20*600 + 5.2*5500 + 0.20*10,000 + 0.25*5,000 = -5200-21000+12000+28,600+2000+1250 = 17650 Price Elasticity: -42*500/26,560 = -1.19 Cross Elasticity: 20*600/26,560 = 0.68 Income Elasticity: 5.2*5500/26,560 = 1.0768 = 1.62 Advertisement Elasticity: 0.2*10,000/26,560 = 0.11 Microwave Oven Elasticity: 0.25*5,000/26,560 = 0.07 Elasticity refers to the degree of changes in a demand or supply curve when prices changes. The elasticity shows the optimum price for the product...
Words: 2653 - Pages: 11
... 1. Elasticity of demand measures the change in the quantity demanded due to the price changes in the market. This can also be characterized as a change in percentage to both the quantity demanded and the price. Durable items, such as appliances or automobiles, show elasticity of demand because these products can be bought infrequently and are not a consumer necessity. These durables can be purchased at leisure or when the prices are low. Elasticity of demand is measured by the number of substitutes available, the degree of necessity, and the price of a good as a proportion of income. Cross-price elasticity is a measure between the price changes or demand for one good affects the change in the price of another good. When the cross-price elasticity is negative, goods are referred to as complements. If there is an increase in price of a good that results in the decrease of the quantity demanded of another product, then both products are considered to be complements of each other. When the cross-price elasticity is positive, goods are called substitutes. If there is an increase in the price of one product that results in the increase of the quantity demanded of another product, then both products are seen as substitutes. Because of cross-price elasticity, goods that compete with one another are often paired together in the market (economics.about.com). Income elasticity measures the change between the quantity of a good demanded and a change in income. Income elasticity is the...
Words: 2372 - Pages: 10
...consumers are willing to buy at different prices is the A) elasticity B) market demand curve C) market supply curve D) market equilibrium 2. The law of demand states : A) that price and quantity demanded are inversely related. B) that price and quantity demanded are inversely related, holding all other factors that influence demand fixed. C) that demand for a good comes from the desire of buyers to directly consume the good itself. D) an increase in demand results in an increase in price. 3. Which of the following statements best illustrates the law of demand? A) When the price of pepperoni rises, the demand for pizza falls. B) When the weather gets hotter, the quantity demanded of ice cream rises. C) When the price of lemons falls, the demand for lemonade rises. D) When the price of eggs rises, the quantity demanded of eggs falls. 4. Which of the following is not typically a factor held constant when deriving a demand curve for clothing? A) consumer income. B) the price of clothing. C) the price of other goods. D) consumer tastes. 5. What is the difference between a derived demand curve and a direct demand curve? A) Derived demand is unknown, whereas direct demand is known. B) Derived demand is unobservable, whereas direct demand is observable. C) Derived demand is demand determined by the demand for another good, whereas direct demand is demand for a good itself. D) Derived and direct demand are both terms referring to the same thing. Page 1 ...
Words: 2803 - Pages: 12
...Pricing Decisions 100% Market Systems 100% Market Equilibrium 100% Concept: Pricing Decisions Mastery 100% Questions 1 . Revenue increases when • A. producer surplus increases Correct : 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, the producer receives a price closer to the minimum acceptable. The consumer surplus measures what the consumer is willing to pay and that price’s difference from the market price. The closer to the market price, the higher the consumer surplus, as consumers are spending less than they are willing to, and the less spent, the lower the revenue will be for the good. Materials • Producer Surplus 2 . An increase in the price of an inelastic goods • C. increases revenues Correct : Inelastic goods are necessities that consumers continue to purchase even when the 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 more is paid for a good or a service, revenue increases. Materials • Price Elasticity and the Total-Revenue Curve • Inelastic Demand 3 . Price elasticity of Demand increases whe • C. people become more price sensitive over time Correct : Price elasticity of demand measures the percentage...
Words: 4531 - Pages: 19
...|A Report on | |Elasticity and Related Problems | |A Report on | |Elasticity and Related Problems | Course Title: Microeconomics Course Code: F – 106 Submitted To: Lubna Rahman Lecturer Department of Finance University of Dhaka Submitted By: |Serial No. | | | |Name | | | |ID No. | | | | | | | |01. | | | |Md. Tanvir Ahmed Chy ...
Words: 2733 - Pages: 11
...CHAPTER 2 THE BASICS OF SUPPLY AND DEMAND QUESTIONS FOR REVIEW 1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level? Assume the supply curve is fixed. The unusually hot weather will cause a rightward shift in the demand curve, creating short-run excess demand at the current price. Consumers will begin to bid against each other for the ice cream, putting upward pressure on the price. The price of ice cream will rise until the quantity demanded and the quantity supplied are equal. [pic] Figure 2.1 2. Use supply and demand curves to illustrate how each of the following events would affect the price of butter and the quantity of butter bought and sold: a. An increase in the price of margarine. Most people consider butter and margarine to be substitute goods. An increase in the price of margarine will cause people to increase their consumption of butter, thereby shifting the demand curve for butter out from D1 to D2 in Figure 2.2.a. This shift in demand will cause the equilibrium price to rise from P1 to P2 and the equilibrium quantity to increase from Q1 to Q2. [pic] Figure 2.2.a b. An increase in the price of milk. Milk is the main ingredient in butter. An increase in the price of milk will increase the cost of producing butter. The supply curve for butter will shift from S1 to S2 in Figure 2.2.b...
Words: 6114 - Pages: 25
...------------------------------------------------- Given a demand function and a supply function, illustrate how the price mechanism, in response to changes in other demand or supply factors, leads to a new market equilibrium price and level of output. 1. ------------------------------------------------- Explain why the difference between the similar-sounding terms, quantity demanded and demand, is so critical to understanding the model of supply and demand. (P.58) Changes in Demand * Note that a change in demand is different from a change in quantity demanded. * A change in demand occurs when the entire curve shifts. * This means that the quantity demanded at every given price will be different from what it was before. Demand * Demand refers to the quantity of products people are willing and able to purchase during some specific time period, all other relevant factors being held constant. * Price and quantity demanded have an inverse relationship known as the Law of Demand, depicted as a downward-sloping curve. * A market demand is the horizontal sum of all of the individual demand curves. * Demand curves shift when one or more of the determinants of demand change. * The determinants of demand are: consumer tastes and preferences, income, prices of substitutes and complements, the number of buyers in a market, and expectations about future prices, incomes, and product availability. * A shift of a demand curve is a change in demand. An increase in demand is a shift up and...
Words: 5306 - Pages: 22
...4 Elasticity: A Measure of Responsiveness Chapter Summary This chapter explored the numbers behind the laws of demand and supply. The law of demand tells us that an increase in price decreases the quantity demanded, ceteris paribus. If we know the price elasticity of demand for a particular product, we can determine just how much less of it will be purchased at the higher price. Similarly, if we know the price elasticity of supply for a product, we can determine just how much more of it will be supplied at a higher price. Here are the main points of the chapter: • The price elasticity of demand—defined as the percentage change in quantity demanded divided by the percentage change in price—measures the responsiveness of consumers to changes in price. • Demand is relatively elastic if there are good substitutes. • If demand is elastic, the relationship between price and total revenue is negative. If demand is inelastic, the relationship between price and total revenue is positive. • The price elasticity of supply—defined as the percentage change in quantity supplied divided by the percentage change in price—measures the responsiveness of producers to changes in price. • If we know the elasticities of demand and supply, we can predict the percentage change in price resulting from a change in demand or supply. Applying the Concepts After reading this chapter, you should be able to answer these four key questions: 1. How does the price elasticity of demand vary over time? 2...
Words: 6227 - Pages: 25
...Income elasticity of demand measures the relationship between a change in quantity demanded for good X and a change in real income. The formula for calculating income elasticity is: % change in demand divided by the % change in income Normal Goods Normal goods have a positive income elasticity of demand so as consumers’ income rises more is demanded at each price i.e. there is an outward shift of the demand curve Normal necessities have an income elasticity of demand of between 0 and +1 for example, if income increases by 10% and the demand for fresh fruit increases by 4% then the income elasticity is +0.4. Demand is rising less than proportionately to income. Luxury goods and services have an income elasticity of demand > +1 i.e. demand rises more than proportionate to a change in income – for example a 8% increase in income might lead to a 10% rise in the demand for new kitchens. The income elasticity of demand in this example is +1.25. Inferior Goods Inferior goods have a negative income elasticity of demand meaning that demand falls as income rises. Typically inferior goods or services exist where superior goods are available if the consumer has the money to be able to buy it. Examples include the demand for cigarettes, low-priced own label foods in supermarkets and the demand for council-owned properties. The income elasticity of demand is usually strongly positive for • Fine wines and spirits, high quality chocolates and luxury holidays overseas. • Sports...
Words: 1984 - Pages: 8
...MANAGERIAL ECONOMICS: SECTION A: PART ONE: MULTIPLE CHOICES: 1. A-MACRO ECONOMICS 2. C-DEMAND FUNCTION 3. B-ARC ELASTICITY 4. B-CONSUMER GOODS 5. C-THE INDIFFERENCE CURVE 6. A-FUTURE COSTS 7. C-EQUILIBRIUM 8. B-GROSS NATIONAL PRODUCT 9. B-PRODUCT APPROACH 10. C-GDP PART-TWO: 1. Concept of Demand Schedule: The inverse relationship between the price and the quantity demanded for the commodity per time period is called as the demand schedule for the commodity. 3. Various forms of Market Structure: The various forms of market structure are: Perfect Competition, Imperfect Competition and Monopoly 4. METHODS OF MEASURING NATIONAL INCOME: We can measure national income either at the production stage by measuring the value of output or the income accrual stage by measuring the amount of factor income earned or at the expenditure stage by measuring the size of total expenditure incurred in the economy. The following are the three methods of measuring national income. 1. Product Approach 2. Income Approach 3. Expenditure Approach SECTION C: APPLIED THEORY: 1. MONETARY POLICY: The monetary policy can be said to be controlled expansion of bank credit and money supply, with special attention to seasonal requirement for credit. The RBI regards money supply and the volume of bank credits as the two major intermediate variables, but it seeks to control the former through the latter. It is said that money supply doesn’t change on its own; it changes because of certain underlying...
Words: 2736 - Pages: 11
...Explain the relationship between the price elasticity of demand and total revenue. What are the impacts of various forms of elasticities (elastic, inelastic, unit elastic, etc.) on business decisions and strategies to maximize profit? Explain using empirical examples. The consumers and producers behave differently. To explain their behavior better economists introduced the concepts of supply and demand. In short words, the law of demand states that with price increase quantity demanded of a good or services decreases, and the law of supply states that quantity of a good produced increase if the market price of that good increases. Of course, it is just general rule and does not explain all varieties of factors impacting the supply and demand model. There for, the quantitative measurement such as elasticity was introduced to provide more detail about market behavior. Price elasticity describes what happens to the demand for a product as its price changes. If the prices for the product rise the demands will decrease. Price elasticity of demand tells us how much the quantity demanded decreases. It is important topic in economic. Market is always changing and if price for the product will change elasticity tells us how much other things will change. The relationship between price elasticity and total revenue is important. Based on analysis of elasticity management will determine the necessary changes on pricing policy for goods and services. To maximize company’s revenue the...
Words: 2313 - Pages: 10
...Demand and Supply: The Basics 21 FUNDAMENTALS OF ECONOMICS FOR BUSINESS - (Second Edition) © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/economics/6794.html Chapter 2 Introduction The most basic, and in many ways the most lasting, lesson to be learnt from “Economics 101” relates to the fundamental concepts of demand and supply and their interaction. These are usually presented in a simple graphical format involving demand and supply “curves”. The word is in quotes because in this chapter, for simplicity, we will actually assume only straightline relationships between price and quantities demanded and supplied. The main issue that is important in reality is the direction of the relationship between prices and quantities. Will a reduction in price lead to an increase in the quantity demanded of any particular product or service? Will an increase in price lead to an increase in supply? And so on. The principal technical tools for analyzing demand and supply conditions in particular markets, then, are the demand and supply schedules or curves. The demand curve shows an estimate or conjecture about the relationship between the price of any particular product or service and the quantity of that product that will be demanded by consumers. It is usually assumed to slope downward, in the general case, for most products and services. In other words, the lower the price of the item, the greater the quantity of it that will be demanded. Technically, this...
Words: 6383 - Pages: 26
