Price Elasticity of Demand and Total Revenue Relationship
Supply and demand is a model economist use to describe the activities between consumers and producers of products and services in the free market. “The law of demand is (other things remaining equal) as prices fall, the quantity demanded rises, ad as price rises, the quantity demand falls” (McConnell, Brue, Flynn, 2012). If we want to see the degree in which changes in prices and incomes affect supply and demand in the market, we use elasticity to better understand (McConnell, Brue, Flynn, 2012). Price elasticity defines what occurs to the demand for a product as the prices are changed. If the price for the product or service rises, then demand will fall. Price elasticity of demand will …show more content…
The government has financial responsibility to support several goods and services which are required by the society. The government gains its revenue through taxes and appropriating funds when needed. When establishing tax rates government needs to remember that the market will respond to increasing or decreasing the tax rate. The government can help elasticity by preventing or assisting in recovery from market failures. Preventing monopolies will keep competition available to control pricing, with a monopoly a company can control pricing since there will be no substitutes. The government fills in when products or services are lacking or missing in the private sector, like security, policing social programs. The government protects society from harmful product by regulating what materials can be used by forcing recalls when product can harm the public. Without the government intervening then companies could disregard public safety to increase revenue. The government also protects private property rights so the public has a way to dispute property rights. These are all good reasons for the government to intervene and put policy or regulations in place to adjust the market from failures. In doing so regulations also affect elasticity either for the good or negative depending on what the regulation is meant to do. For example, regulating what materials could be used in manufacturing the product could mean higher cost for the product. In the same way preventing a monopoly would benefit the market as to provide competition and provide consumers with possible
Supply and demand is a model economist use to describe the activities between consumers and producers of products and services in the free market. “The law of demand is (other things remaining equal) as prices fall, the quantity demanded rises, ad as price rises, the quantity demand falls” (McConnell, Brue, Flynn, 2012). If we want to see the degree in which changes in prices and incomes affect supply and demand in the market, we use elasticity to better understand (McConnell, Brue, Flynn, 2012). Price elasticity defines what occurs to the demand for a product as the prices are changed. If the price for the product or service rises, then demand will fall. Price elasticity of demand will …show more content…
The government has financial responsibility to support several goods and services which are required by the society. The government gains its revenue through taxes and appropriating funds when needed. When establishing tax rates government needs to remember that the market will respond to increasing or decreasing the tax rate. The government can help elasticity by preventing or assisting in recovery from market failures. Preventing monopolies will keep competition available to control pricing, with a monopoly a company can control pricing since there will be no substitutes. The government fills in when products or services are lacking or missing in the private sector, like security, policing social programs. The government protects society from harmful product by regulating what materials can be used by forcing recalls when product can harm the public. Without the government intervening then companies could disregard public safety to increase revenue. The government also protects private property rights so the public has a way to dispute property rights. These are all good reasons for the government to intervene and put policy or regulations in place to adjust the market from failures. In doing so regulations also affect elasticity either for the good or negative depending on what the regulation is meant to do. For example, regulating what materials could be used in manufacturing the product could mean higher cost for the product. In the same way preventing a monopoly would benefit the market as to provide competition and provide consumers with possible