Answer questions on the economy with the explanation and examples Essay

Answer questions on the economy with the explanation and examples - Essay Example With increasing income, the demand for a luxury goods increases sharply as compared to necessity goods. In this case, there is a larger proportionate change in the quantity demanded when a change in price of the good occurs. When the price of the good rises, the demand will fall proportionately more; hence, the total revenue will fall. But when the price of the good falls, the demand will rise proportionately more; hence, the total revenue will rise as well. In this case, there is a smaller proportionate change in the quantity demanded when a change in price of the good occurs. When the price of the good rises, the demand will fall proportionately less; hence, the total revenue will rise due to the higher price. But when the price of the good falls, the demand will rise proportionately less; hence, the total revenue will fall as well. It refers to the maximum price that has set by the government or an agency. The concerns cannot rise above this maximum rate but can fall below it. For Example: Maximum price of the oil fixed by the government in Third world countries. It refers to the minimum price that has been set by the government or an agency. The concerns cannot fall below this minimum rate but can rise about it. For Example: Minimum wage rates fixed by the government. An economic law that states that, as the quantity of a variable factor is increased, the marginal product of these additional units will, at a particular point, start to diminish and be less than the marginal product of the former unit. In the short run of the firm’s production, a few of the input factors are considered to be fixed in nature. Whereas in the long run of the firm’s production, there are no fixed factors as the company can vary the quantity being used over the period of time. The profits are maximized when MR=MC: at an output level of Q as shown in Figure 3. If the output is less than Q, the MR exceeds MC. This