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Essay / Research Paper Abstract
This 5 page paper looks at 3 questions set by the student. The first looks at how the determine the change in demand when the old and new price and the level of elasticity are known, what is meant by the term ‘social costs’ and how economies of scale are realized. The second part looks at supply and demand and how this can be shown in graphs with the price shown by the point of equilibrium and how a drop in demand will impact on the market in the short and long term. The third question looks at why there has been an increased demand for bikes in London following the terrorist attacks and the impact of indifference curves.
Page Count:
5 pages (~225 words per page)
File: TS14_TEsupdques1.rtf
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Unformatted sample text from the term paper:
ignore the minus sigh at the beginning and can then interpreted this elasticity figure as meaning for ever 1% the price increases there will be a 1.5% decrease in demand.
The opposite is also true, for every 1% decrease in price there will be a 1.5% increase ion demand. In this case the price is currently ?50 and the demand
is 100 units a month. This means we can assess the potential impact on demand for a new price. If the new price is ?40 a unit, this is
a 20% decrease, so 1.5 x 20% is 30% meaning there will be a 30% increase in the demand, making the demand 130 units a month. 130 units x
$40 = ?5,200 revenue per month, the former position was 100 units x ?50 = ?5,000 revenue per month As long as the addition cost of providing the extra 30
jumpers is less than the additional ?200 made with the increased revenue from the higher sales at the lower price, then the revenue and the profit will be higher. If
the cost pf providing the extra units is above the additional ?200 then there is a reduced profit level. The desired answer is probably that this creates more revue and
as such the price decrease is a good move. 2. Paul has complained to Gordon Brown that the price of cigarettes is too high. Brown has said it is too
low as it does not acknowledge the social cost of smoking. Social costs are the external costs, for example, the internal costs are those such as materials, wages etc. Social
costs are the costs are those such as environmental pollution. The external costs arte those that have to be met from the public purse. For smoking this will include not
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