Microeconomics Assignment

Microeconomics Assignment Words: 481

In response, sellers are less willing and able to produce PC’s, causing the equilibrium quantity to decrease. Global shipments of PC’s tumbled by 8 per cent year-on-year to 87. Million units in the third quarter of 2012. ” Facing a decreased in quantity and profit, this gave reasons to why some PC firms are struggling to change their production lines from falling PC shipments. (Fig 2. 3) In contrast to the PC firms, smartened firms are earning profits from the increased in sales. As the demand of smartness increase, it shifts the curve rightwards.

A shortage develops in the market and hence, the equilibrium price increases. In response, consumers are less willing and able to buy thus, decreasing the equilibrium quantity. (Fig 2. 4) 4. Elasticity 4. 1 Determinants of Elasticity The price of smartness has been increasing over the years due to the increase in demand and the advanced mobile technology. Smartness now can perform many functions to suit the users’ need thus attracting consumers to buy the product. Despite the increasing cost of smartness, there are still consumers who are willing and able to buy.

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Applying the elasticity of demand, the sale of smartness is price inelastic, depicted by a steep demand curve (Fig 3. 1). This is due to the two determinants of elasticity which are habit and necessity. Habit Due to over reliance on technology devices such as smartened, smartened seers use the device habitually. As it is a norm to have smartness by their side, users would still buy smartness even though it is gradually becoming more expensive. This causes the demand to be price inelastic. Users will not be very responsive to price changes as they feel “under pressure to stay connected with work outside the normal working hours”.

Necessity VS. Luxury As smartened users spend up to five hours per week connected through phones to their work outside normal work hours, smartness have become an important tool in their working and non-working life. Users are very dependent on smartness. Smartened IS a necessity to them. This causes the demand curve to be price inelastic as smartness is classified as a necessary item. 4. 2 Elasticity and Total Revenue Since demand is price inelastic, the percentage change in quantity demanded Of smartness will be smaller than the percentage change in price.

As shown from Fig. 1, the demand curve is steep. If the smartened firms decrease the price and increase quantity supplied, they would suffer a loss. As consumers would not increase their quantity demanded of smartness even when the price is lowered, the percentage change in price decrease is ore than the percentage change in quantity increased. The amount of profit earned will be less than the loss incurred. The total revenue shrinks as a result. (Fig 3. 2) Therefore, if firms want to increase their total revenue, they should increase the selling price of the smartness.

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