question archive 1)What are the factors that will affect demand and supply and its prices? 2)When the quantity effect outweighs the price effect A
1)What are the factors that will affect demand and supply and its prices? 2)When the quantity effect outweighs the price effect A
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1)What are the factors that will affect demand and supply and its prices?
2)When the quantity effect outweighs the price effect
A. a price increase will cause a drop in revenue.
B. a price increase will cause an increase in revenue.
C. a price decrease will cause a decrease in revenue.
D. None of these
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1)Factors Affecting Demand
- Income level. When individuals' income increases, demand increases because people will have funds to spend. This leads to an increase in both the equilibrium price and the equilibrium quantity.
- Population growth. When the population growth rate is high, the need for more products increases and hence a rise in demand. This leads to an increase in both the equilibrium price and the equilibrium quantity.
- Advertisement expenditure. When the advertisement expenditure increases, the need for goods increases. This is because the increased advertisement means that a large population will know about the product. This leads to an increase in both the equilibrium price and the equilibrium quantity.
Factors Affecting Supply
- The level of technology. Increase use of technology leads to an increase in production, which increases the number of goods and services supplied to the market. This leads to a rise in the equilibrium quantity and a decline in the equilibrium price.
- The price of raw material. When the cost of raw material increases, it leads to a reduction in the production of a particular product. This results in a reduction in the equilibrium quantity and an increase in the equilibrium price.
2)When the quantity effect outweighs the price effect A. a price increase will cause a drop in revenue.
When the quantity effect outweighs the price effect, this means that demand is elastic (the price elasticity of demand is greater than 1) - a small increase in price will lead to a significant decrease in quantity. Because the percentage decrease in quantity is greater than percentage increase in price, and revenue is the product of quantity and price, a price increase will cause a decrease in revenue.
