The price elasticity of demand examines how price changes affect demand. In theory, consumer buys less of product if the price increases, however, Marshall said it was not always true. For example, even the price of the medicine is increased, the demand of the goods would not reduced, which means, their price are inelastic. The price elasticity of demand is affected by: the availability of substitute goods, and proportion of income spent on the good and the time elapsed since a price
Fischer’ transaction Approach can be also described as follows: MV=PT Where, M stands for Money Supply, V are the Velocity of money circulation, P is the Price Level and T is a Transaction. From the equation above and based on theory assumptions, there is unidirectional causality from price to money supply, it therefore that the price is directly influenced by an increase in money supply. For T increases, P will remain relatively constant; however, if there is no corresponding increases in the quantity and services produced, P will increase. Consequently this increase in price level causes inflations (cited in: Sattarov, 2011). 2.1.6.
The customer’s demand is expressed as a function of time, price and credit period which is appropriate for the products for which demand increases initially and after sometime it starts to decrease. In order to reduce the holding cost of supplier, the production is considered as one of the decision variable, which is directly proportional to the customer’s demand rate. The aim of this paper is to maximize the joint profit for supplier and retailer. Some numerical examples are demonstrated for validation of the developed mathematical model. Finally, implementing sensitivity analysis on the decision variables by varying the inventory parameters, effective managerial insight are generated which is beneficial for players of supply chain.
Raman & Bass (2002), on the other hand state that this theory hypothesizes that the response to a stimulus depends on its relationship to preceding stimuli. They further point out that consumers form adaptation levels through exposure to the stimuli. They contend that response to the current stimulus is a function of the relationship between the stimulus level and the adaptation level. In the context of price response, they refer to this adaptation level as the normal or standard price. Teunter (2002) on the other hand posit that researchers have thought of the reference price as an expected price.
Change in supply, usually supply curve doesn’t be static it could happen that will shift certain quantity and price. The characters of the market can change the supply curve by shifting in or shifting out. There are several types that change the supply curve such a decrease in costs of production; this means business can supply more at each price. Lower costs could be due to lower wages, lower raw material costs. An increase in the number of producers will cause an increase in supply.
What is Elasticity Economic elasticity is defined as the responsiveness of a dependent economic variable to changes in influencing factors, such as price, income and price of related products. It is a measure of responsiveness between any two variables. I. Elasticity of Demand Demand elasticity refers to the reaction or the response of the consumers to changes in determinants of demand such as price, income and price of related products. As discussed earlier, when price of commodities increases, the logical behavior of the consumer is to decrease consumption. However, the degree of reaction varies from one consumer to another, taking into values and preferences.
Both scenarios have major drawbacks, with scenario 1 the price increase would decrease consumption. Scenario two would increase consumption and creates a shortage. Scenario 1 creates a surplus and inventory cost. Encourages market entry with profit incentives. Figure 1 below illustrates the surplus and the
If the variable factor of production is increased (e.g. labour), there comes a point where it will turn out to be less profitable and therefore there will eventually be a decreasing marginal and then average product. This is because, if the capital is stable, additional employees will eventually get in each other’s way as they are trying to increase production. Marginal cost of production must increase if the marginal product of a variable resources is decreasing because the law of diminishing returns states that it refers to a rise in some inputs relatively to other fixed inputs will in a
There is a law of Demand which states that the higher the price of a product, the lower the demand for that product and the lower the price of a product, the higher is the quantity demand. The inverse relationship between price and demand of a good or service. Change in quantity demand and a change demand may seem to be two ways of expressing the same idea, but they are not. What is the difference? Economists define change in quantity demand to mean only the change in quantity demand of a good that is brought about by a change in the price of that good.
Incentives play a central role in the study of economics. Roberts (n. d.) expressed that incentives make differences. The most popular case in economics is the demand curve model, which illustrates that when the price of something rises, the demand for it decreases and vice