StudentShare solutions
Triangle menu

Econonics - Essay Example

Nobody downloaded yet

Extract of sample

This phenomenon is called the income effect. Similarly, when the price of a particular product increases certain person opt to switch to any other low priced substitute goods. This is called the substitution effect. This clearly explains that there is a relation between income effect and substitution effect. That is, the substitution effect occurs as result of income effect.
2. Explain, using an income compensated demand curve, how a per unit tax on a good can reduce 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 buyer also. There is an inverse relation between the demand and supply, but the price factor is also playing a key role in this context. If there is an increase in the price of a commodity, the total 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" effects

Compensated demand curve slopes downwards

(Keen 2000).

Thus it becomes apparent 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 phone companies) to offer a menu of price and service options to consumers
Every consumer has his or her own rights to select the goods according 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 Function

Optimization Model

(Mylonakis 2004).
The applicability of consumer theory is very beneficial in the case of cutthroat competition. Due to recent technological advancements, nowadays mobile phone companies are also functioning on the basis of modern economic principles. "Mobile 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 parts of a mobile company to be useful, such as through an electronic knowledge repository. But mobile services involve more than just sending knowledge. They incorporate both technical and cultural challenges. To deliver superior service ...Show more


The term economics is a wider concept that applies to the aspects of production, distribution and marketing of business. Therefore, economics can be treated as the science of all aspects relating to a business.
The concept of income and substitution effect can be explained based on elastic or normal goods…
Author : cassandraemmeri
Econonics essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Effects of Rising Economic Role of China on High Levels of Unemployment in the EU and USA
This essay focuses on the identification of current macroeconomic trends in development of China, the European Union and The United States in regards to level of unemployment in respective economies. Major economic factors, that can force reliance on imports from Chinese economy in the US and the member- countries of the EU are considered.
4 pages (1000 words) Essay
Applied Statistics for Finance and Economics Project report
Such aspects include; the trend, seasonal component, cyclic component, and the random error component. A log return of stock one and the return data exhibit trend component and this component can be eliminated by many methods of time series. Such methods may include
8 pages (2000 words) Coursework
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Contact Us