PRICE ELASTICITY OF DEMAND
The price elasticity of demand is a measure of how responsive
buyers are in their purchases of a product/service to a change in
the price of that product/service.
Computing the price elasticity of demand:
An indifference curve reflects all combinations of two goods that
result in the same level of satisfaction.
Indifference curves contain no information regarding what the
individual can or cannot purchase. Indifference curves (as in all
Business profit = Total Revenue Total Cost
where TR P Q
A firms revenue is determined by the demand the firm
The firms revenue function is either hill-shaped or linear.
EXAMPLE #1 Downward-sloping demand curve
Suppose the XYZ Corporation pro
Good economists know that every voluntary exchange is mutually
Those who voluntarily exchange with each other do so because
each receives something they value more highly than what they
Mutually beneficial voluntary ex
Inverse relationship that exists between the price of a thing
and the quantity demanded is explained by (1) the purchasing
power effect, (2) the substitution effect, and (3) diminishing
The law of supply" is this simple observation:
Production is the process of transforming inputs into outputs.
Different types of inputs:
Avoidable fixed inputs
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According to the law of demand, if other factors remain unchanged, an increase in the price of
an item will result in
a decrease in the quantity demanded.
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New safety regulations increase manufacture