Suppose we have to analyze the impact of a change in demand for widgets. There i

Question

Suppose we have to analyze the impact of a change in demand for widgets. There is some uncertainty about the elasticity of supply of widgets. One analyst says that the supply is elastic and another analyst says that the supply is inelastic. We are concerned about potential price and quantity changes in this competitive market because we are responsible for planning at the firm. We know that demand will increase. Explain fully why it is important to know the supply elasticity if you want a precise understanding of the price change occurring from the demand increase. include appropriate graphs and explain the graphs The majority of firms in the economy operate in conditions that while competitive in some sense are less competitive than the perfectly competitive model. For those firms explain how they might influence the price elasticity of demand for their “brand” and why they might attempt to exert this influence. If you were a governmental entity considering sales taxes on various goods, what is the economic rationale for imposing taxes on goods that have an inelastic demand over those that have an elastic demand.

Explanation / Answer

It is very true about gadgets, There are many gadgets that are present in the market and only some command premium and all others sell at certain range.

The best example is large corp's like apple have ipad, ipod, iphone etc they all command a good price in the market. It does not mean they are just price inelastic, If apple increase the prices of their products certainly demand will drop, but i mean to tell only some products have comfort of marketing their product at premium prices.

Customers in this industry are very keen about specifications of the product than other things like size etc. If you have a perfect product which can compete with large tech companies then you will certainly generate huge volumes and economies of scale, thus generating huge profits.

The success story of Chinese company Xiaomi is one example, They launched premium products at low prices and got huge volumes. Now they are almost a $15 billion dollar company just in one year.

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