Economics

Break-even Point of Production The break-even point can be defined as the production and sales levels of a given product at which the revenue generated from the sales is perfectly equal to the production cost. At this point, the company…

The law of diminishing marginal returns states that the marginal return from an increased input, say labor, will decrease when this input is added continually to a fixed capital base. Example: Law of Diminishing Marginal Returns A good example is…

Normal Goods Normal goods are goods whose demand increases with an increase in consumers’ income. Note that the rate at which demand increases is lower than the rate at which income increases. The rate eventually slows down with further increments…

Substitution Effect A substitute is a good that satisfies the same need as another good, e.g.,  broccoli and cauliflower. The substitution effect states that a good becomes more of a bargain relative to other goods as its price declines; therefore,…

Elasticity measures the sensitivity or responsiveness of one variable to another. There are three main forms of elasticity – price elasticity, income elasticity, and cross-price elasticity. Price Elasticity Price elasticity of demand is a measure of how a product’s demand…

Aggregate supply refers to the total amount of goods and services that firms in an economy are both willing and able to sell at a given price level. We must differentiate between the short- and long-run aggregate supply curves. Practice…

Study Session 4 Reading 8 – Topics in Demand and Supply Analysis LOS a: calculate and interpret price, income, and cross-price elasticities of demand and describe factors that affect each measure; -LOS b: compare substitution and income effects; -LOS c:…

  A supply function is a mathematical expression that represents the relationship between the units of quantity of a product or service demanded, its price, and other deterministic factors such as input costs, prices of substitutes, etc. The dependent variable…

An optimal price can be defined as the price at which a seller can make the highest profit possible; that is, the seller’s price is maximized. The rule of marginal output postulates that profit is maximized by producing an output,…

Pricing strategy can be described as the range of methods that the firms use to price their products and services. Companies and firms always set prices in accordance with the market structure in which they operate. Practice pricing strategy questions…