The following is a demand schedule for shoes:
Price: $100 $80 $60 $40 $20
Quantity: 10 14 18 22 26
Illustrate the demand curve.
How much will consumers spend on shoes at a price of $80?
At P=$80, q=14.
As price drops from $100 to $80, is the demand elastic or inelastic? Show your work or reasoning.
As price drops from $100 to $80, q rises from 10 to 14. e= (% change in qty)/(%change in price) = - [4/10]/[20/100] = -(2/5)/(1/5) = -2
Hence the demand is elastic.
Advertisers convince people that to be stylish they need twice as many shoes.
Redraw the demand curve.
Now the demand is twice the original amount at the same level of price.
How much will consumers now spend on shoes at a price …show more content…
The major difference is because the opportunity cost of a choice. Opportunity cost is the cost incurred in either foregoing or discarding an option. In this case this would be the rent of $800 which is not usually paid by the company.
Accounting costs considers only the explicit cost incurred. But economic costs consider the implicit costs incurred, which in this case the rent on the building. It is not considered under accounting costs since money does not change hands. But the company could have alternatively rent out the building. Hence the rent is the implicit cost of using the building and has to be considered while making economic decisions.
Consider the marginal cost for a product like Microsoft Windows 8. How does the marginal cost for a product like this differ from a product like automobiles? What relevance might there be to this difference?
In case of an automobile, the marginal cost is a large amount. To produce an additional automobile, various resources like the raw materials (steel, glass etc), labor etc.
However to make an additional copy of Microsoft Windows, the only additional cost incurred is in printing it on a CD. Thus the marginal cost of Microsoft Windows is significantly less than what is incurred in producing an additional unit of