Assignment (Economics) Example | Topics and Well Written Essays - 500 words

(Economics) - Assignment Example The demand for eggs will be inelastic because it is a necessity (food item). For instance, it also takes a low portion of income. The demand for DVD rentals would be relatively inelastic for a consumer who has high inclination for movies, dramas, shows, music etc. Also, it takes very low portion of income as the rentals are lower than acquisition costs. The demand would be elastic for a customer with no interest in music or entertainment. Answer 3 If a firm seeks to raise total revenue, then it must consider the impact of three major factors such as price, substitutes and time on consumers. For instance, the necessities (food, clothing, shoes, automobiles, utilities, communication, transport, internet etc.) have inelastic demand; therefore, a price increase will lead to an increase in total revenue. However, the luxuries (air travel, perfumes, expensive brands etc.) have highly elastic demand; therefore, the price increase will lead more than proportional decrease in demand and reven ue decreases. Next, if a product has greater availability of substitutes in market then price increase of a product will lead to increase in demand of substitute.