Managerial Economics: Amazon And Ebay

1.1

What is a market?

A market is the place where sellers and buyers gather together to trade dollars for services or products. They do not necessarily get together face to face. Products may be purchased by customers and offered for sale by producers at online marketplaces like Amazon and eBay. The dollar amount paid by a buyer to the seller in return for a product is known as the price. You will discover markets for the elements of manufacturing. For instance there exists a market for workforce (laborers). The workforce is required by manufacturers to produce goods. The manufacturers are the purchasers of manual work and individuals are the sellers of their personal labour.

The reason why a causal negative relationship exists between price

This implies that customers must not merely wish for the product but also possess sufficient funds to be in a position to purchase it and that the amount demanded is calculated over a certain time period like daily, weekly, or annually. Once customers are ready and in a position to purchase the good demand is known as ‘effective demand’. The law of demand says that when price declines quantity demanded also increases and when price goes up, quantity demanded drops. There is an inverse or negative association between price and quantity demanded. The two main effects on quantity demanded of a difference in price that describe the negative association: the substitution effect and the income effect.

What is the substitution effect?

A substitute is a product you can use instead of a different product. When the price of a product declines it would be comparatively less expensive compared to the alternate product resulting in some customers to purchase the product instead of the substitute. When the price of a product increases it would be comparatively more costly compared to the alternate product resulting in some customers to purchase the alternate good instead of the good. Changing the price consequently results in a change in amount demanded.

What is the income

When price increases quantity supplied increases. An alteration in price results in quantity supplied to shift in the same direction. When price rises quantity delivered rises and when price declines quantity supplied reduces. The reason is that a firm’s primary goal is to maximize earnings. When price rises, ceteris paribus, profit goes up as a result companies boost quantity supplied by changing resources off of the manufacturing of additional products in an effort to make more of the product that generates increased profit. When price declines profit drops ceteris paribus and companies decrease quantity