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Mb0042 Assignment Thofa

Mb0042 Assignment Thofa

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Published by Thoufeeq Thofa
mb0042 smu assignment
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mb0042 smu assignment
for word format contact thofa4u@gmail.com

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Published by: Thoufeeq Thofa on Sep 06, 2011
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04/30/2013

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ASSIGNMENT MANAGEMENTECONOMICS -MB0042
1
ASSIGNMENT
MANAGEMENT ECONOMICS
REG NO :NAME : MOHAMMED THOUFEEQCOURSE : MBASEMESTER : FIRST SEMISTERSUBJECT CODE : MB 0042SUBJECT NAME : MANAGEMENT ECONOMICSSET NO : 1&2
 
ASSIGNMENT MANAGEMENTECONOMICS -MB0042
2
ASSIGNMENT SET-1
Q.1Priceelasticityof demanddependsonvariousfactors. Explain eachfactor withthehelpof an example.
 
A behavioralrelationship betweenquantity consumedand aperson'smaximum willingness to pay forincrementalincreasesin quantity. It is usually aninverserelationship whereat higher(lower)prices, less (more)quantity isconsumed.Otherfactorswhichinfluencewillingness-to-pay areincome,tastesand preferences,andpriceofsubstitutes. Demandfunction specifieswhattheconsumerwould buy in each priceandwealth situation, assuming it perfectlysolvestheutility maximizationproblem.Thequantity demandedofagood usuallyis astorng function ofits price.Supposean experimentis run to determinethequantity demandedofaparticularproduct at differentpricelevels, holdingeverythingelseconstant. Presenting thedataintabularform would result in ademand schedule.Elasticity ofdemandis theeconomist’s wayoftalking about how responsiveconsumers areto price changes.Forsomegoods, likesalt, evenabig increaseinpricewill not causeconsumersto cut backvery much on consumption. Forothergoods, likevanillaicecreamcones,evenamodest priceincreasewill causeconsumersto cut backconsumption. Elasticity ofdemandisused to show theresponsivenessofthequantity demandedofagood orservicetoachangein itsprice.Moreprecisely,it gives thepercentagechangein demand onemight expectafteraonepercentchangein price.Elasticity is almost alwaysnegative, althoughanalysts tendto ignorethesign eventhough this canlead to ambiguity. Onlygoods whichdo not conform to thelawofdemand,such as VeblenandGiffengoods, haveapositive elasticity demand.Goods with asmall elasticity demand(lessthanone)aresaid to beinelastic: changesin pricedo not significantlyaffectdemande.g.drinking water.Goodswith largeelasticity demand’s(greater thanone)aresaid to beelastic: evenaslight changein pricemay causeadramaticchangein demand. Revenueis maximisedwhen priceis set so as to createaEDofexactlyone; elasticity demand‘s canalso be usedto predicttheincidenceoftax.
 
ASSIGNMENT MANAGEMENTECONOMICS -MB0042
3
Variousresearchmethods areused to calculatepriceelasticity, including testmarkets, analysisofhistoricalsales dataand conjoint analysis. Thereis aneatwayof classifyingvalues ofelasticity. Whenthenumericalvalueofelasticity is less thanone, demandis saidto be
inelastic”.Whenthenumericalvalueofelasticity isgreaterthanone, demandis “elastic”.So “elasticdemand meansthat peoplearerelativelyresponsiveto pricechanges(rememberthevanillaicecreamcone).“Inelastic”demand meansthat peoplearerelatively unresponsiveto pricechanges(remembersalt).An important relationship exists betweentheelasticity ofdemandforagood andtheamount ofmoney consumerswant tospendon it at differentprices. Spending is pricetimes quantity, p timesQ. In general,a decreasein priceleadsto an increasein quantity, so ifpricefalls spending mayeitherincreaseordecrease, dependingon how much quantity increases.Ifdemandis elastic,thenadropin pricewill increase spending, becausethepercentincreasein quantity islargerthan thepercentdecreasein price.On theother hand,ifdemand is inelasticadrop in pricewill decreasespending becausethepercentincreasein quantity issmallerthan thepercentdecreasein price.Thepriceelasticity ofdemandmeasureshow responsivethequantitydemandedofagood is to achangein its price.Thevalueillustrates ifthegood isrelativelyelastic(PEDis greaterthan 1)orrelatively inelastic (PEDless than 1).Agood's PEDis determinedby numerous factors,theseinclude;Numberofsubstitutes: thelargerthenumberofclosesubstitutes forthegood,theeasierhousehold canshift to alternativegoods ifpriceincreases.Thelargerthenumberofclosesubstitutes,the moreelasticthepriceelasticity ofdemand.Priceofthegood asaproportion ofincome:It canbearguedthat goods thataccountforalargeproportion ofdisposableincometend to beelastic.This is dueto consumersbeing moreawareofsmall changesin priceofexpensivegoodscomparedto small changesin thepriceofinexpensivegoods.Theexampleillustrateshow to determinepriceelasticity ofdemandforagood.
Thepriceelasticity ofdemandforsupermarketstrawberryjam is likely to be elastic.This is becauseoflargenumberofclosesubstitutesandthegood is not a necessityitem. Therefore,consumers will easily respondto achangein price.

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