Econonics Essay Example | Topics and Well Written Essays - 2000 words

Econonics - Essay ExampleThis phenomenon is called the income effect. Similarly, when the price of a particular product increases certain(a) person opt to switch to any other low priced substitute goods. This is called the substitution effect. This clearly explains that in that respect is a relation between income effect and substitution effect. That is, the substitution effect occurs as result of income effect.2. Explain, apply an income compensated demand mold, how a per unit tax on a good can edit out its consumption even if the government uses the tax revenue to make consumers as well off as they were before the tax was imposed.The tax impact should be met by the consumers themselves. If there are any changes in the price of a commodity, it will ultimately affect the demand of such a product, and finally the income of the vendee also. There is an inverse relation between the demand and supply, but the price factor is also compete a key role in this context. If there is an increase in the price of a commodity, the quantity income level of the consumer will be affected.As shown in the Calculus of Hedonism, economists derive the individual demand curve from individual utility maps. Normally this results in the desired downward-sloping demand function, but there is a fly in the ointment to dispose of, since it is possible, though difficult, to draw a utility map which results in an upward sloping demand curve. Upward Sloping Demand Curve with Inferior goods.Separating the impact of a price change into the income and substitution effectsCompensated demand curve slopes downwards(Keen 2000). Thus it becomes sheer that if any changes take place in the price pattern of a commodity, there should be a corresponding change in the income level of the consumer. 3. Explain, using consumer theory, why it might benefit companies (for example, mobile telephony companies) to offer a menu of price and service options to consumersEvery consumer has his or her own righ ts to select the goods accord to his or her taste and preferences. Consumers should give emphasis for the quality of goods and the price affordability. The consumer theory gives more focus on the concept of effective utilization of purchased goods and thereby the attainment of satisfaction. Utility FunctionOptimization Model(Mylonakis 2004).The pertinence of consumer theory is very beneficial in the case of cutthroat competition. Due to recent technological advancements, present tense mobile phone companies are also functioning on the basis of modern economic principles. lively commerce opportunities cover mobile initiatives that are designed to achieve strategic change in downstream activities through direct interaction with the customer. Customer knowledge must reach all the necessary move of a mobile company to be useful, such as through an electronic knowledge repository. except mobile services involve more than just sending knowledge. They incorporate both technical and et hnical challenges. To deliver superior service