Consumer Demand System-Free-Samples for Students-Myassignmenthelp

Questions: 1.As a producer, why is it important to Consider the Price Elasticity of Demand of your Product when setting the price you are going to Charge? with graph. 2.Explain the difference between Comparative Advantage an Absolute Advantage. Answers: 1.Price elasticity of demand refers to the rate of change in demand of the products with the change in their prices. In the determination of the pricing strategies for the products, it plays an important role (Hinterhuber Liozu, 2012). Producers have to first identify the rate pattern of elasticity of the product to determine the price. If it is being seen that the rate of change in the demand of the product is much lower than the rate of change in price, then it is termed as inelastic demand (Havranek, Irsova Janda, 2012). In that case, producers can price their products as their wish due to the reason that it will not influence the consumer buying behavior. Figure: 1. In-elastic demand curve In the above figure, it is shown that with the change in the price of the product from 70 to 100, the demand changed only 220 to 200. Thus, rate of change in demand is less than the change in price (Pierce Shoup, 2013). Necessities products tends to have inelastic demand due to the reason that consumers will buy it by necessity provided what the price is (Chongela, Nandala Korabandi, 2014). Thus, producers will have more influence in determining the pricing strategies. Figure: 2. Elastic demand curve In the above graph, it is shown that when the price of the product is changing from p1 to p2, then the quantity demanded changing from q1 to q2. Thus, the rate of change in the demand is more than the change in the price. This is termed as elastic demand. In this case, producers have to consider the market price of the product o determine their pricing strategies. It is due to the reason that, if they increase the price of product then the rate of reduction in demand will be more. On the other hand, if they decrease the price, competitors will also decrease the price. Thus, there will be universal market oriented price. 2.Comparative advantages refer to the advantage of producing goods with having lower opportunity cost than others (Levchenko Zhang, 2016). On the other hand, absolute advantages refer to the advantages of producing more products in having fewer resources than others (Schumacher, 2012). Thus, a country having absolute disadvantage over another means they can produce goods on their own but the productivity will be low than the country having absolute advantage. However, in the case of comparative advantage, country having disadvantage will find more profit in importing the products than producing it by own. This is due to the reason that the opportunity cost of producing the product will be more than cost of importing. Corn wheat Country A 5 15 Country B 6 2 Table: 1. Absolute vs. Comparative advantage Figure: 3. Absolute vs. Comparative advantage In the above figure, it is shown that country A is having absolute disadvantage over country B in terms of production of corn. It is due to the reason that it is producing marginally less amount of corn than country B. However, the difference is less and they can produce it by their own rather than importing it. On the other hand, country A is having comparative advantage over country B in terms of production of wheat. It is due to the reason that, the rate of production of wheat between the two countries is much more. Thus, it will be profitable for the country B to import the wheat from country A, rather than producing by own (Mankiw, 2014). This is due to the reason that, the opportunity cost of producing the wheat by country B will be more than the cost of importing. References Chongela, J., Nandala, V., Korabandi, S. (2014). Consumer demand system of agri-food in Tanzania. Journal of Development and Agricultural Economics, 6(1), 42-48. Havranek, T., Irsova, Z., Janda, K. (2012). Demand for gasoline is more price-inelastic than commonly thought. Energy Economics, 34(1), 201-207. Hinterhuber, A., Liozu, S. (2012). Is it time to rethink your pricing strategy?. MIT Sloan Management Review, 53(4), 69. Levchenko, A. A., Zhang, J. (2016). The evolution of comparative advantage: Measurement and welfare implications. Journal of Monetary Economics, 78, 96-111. Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning. Pierce, G., Shoup, D. (2013). Getting the prices right: an evaluation of pricing parking by demand in San Francisco. Journal of the American Planning Association, 79(1), 67-81. Schumacher, R. (2012). Adam Smith's theory of absolute advantage and the use of doxography in the history of economics. Erasmus Journal for Philosophy and Economics, 5(2), 54-80