Final Exam Notes: Economic Decision Making (Supply and Demand)
1. If a firm is able to properly calculate the price of a elasticity of demand for its products, it will be able to determine the market’s responsiveness, or sensitivity, to changes in price for a specific product and will allow the firm to more accurately forecast the effects on total revenue. Knowledge of elasticity can help a firm to project big-picture effects of raising or lowering products’ prices by predicting changes in market price on total industry sales and total consumer expenditures in the industry.
For example, if a sunglasses retailer is looking to increase their total revenues, they need to determine how a change in the price of sunglasses will input the quantity of sunglasses demanded. If they increase the prices of sunglasses by 15% and demand is inelastic, then revenues would increase. The likelihood, however, off sunglasses being or becoming elastic is slim. For a sunglasses retailer to increase their total revenues, it would seem more plausible for the retailer to focus their business strategy on decreasing the prices of sunglasses in order to sell more units and increase consumer demand.
2. As a manager of a steel mill, it is critical to consider certain economic indicators when thinking about demand for steel products. Though steel is one of the world’s most widely traded commodities, the demand for steel products tends to be rather cyclical in nature. Demand for steel products often fluctuates based on demand of products and services offered by complementary industries such as manufacturing, automobile, development and construction, real estate, infrastructure companies. Further, if a steel mill company has an international customer base, the mill would need to consider these economic factors in foreign markets as well as domestic markets and assess the overall end-product demand from these industries. For instance, if the mill maintains an international customer base, the mill should assess the current economic status
For example, if a sunglasses retailer is looking to increase their total revenues, they need to determine how a change in the price of sunglasses will input the quantity of sunglasses demanded. If they increase the prices of sunglasses by 15% and demand is inelastic, then revenues would increase. The likelihood, however, off sunglasses being or becoming elastic is slim. For a sunglasses retailer to increase their total revenues, it would seem more plausible for the retailer to focus their business strategy on decreasing the prices of sunglasses in order to sell more units and increase consumer demand.
2. As a manager of a steel mill, it is critical to consider certain economic indicators when thinking about demand for steel products. Though steel is one of the world’s most widely traded commodities, the demand for steel products tends to be rather cyclical in nature. Demand for steel products often fluctuates based on demand of products and services offered by complementary industries such as manufacturing, automobile, development and construction, real estate, infrastructure companies. Further, if a steel mill company has an international customer base, the mill would need to consider these economic factors in foreign markets as well as domestic markets and assess the overall end-product demand from these industries. For instance, if the mill maintains an international customer base, the mill should assess the current economic status