The Coase theorem states that the problem of externalities will be resolved through bargain when there are no transaction costs and that property rights are well defined, the theorem states that firms in conflict will bargain and one firm may acquire the property right of the other firm however the assumption is that there are no transaction costs. This theory defines the existence of firms in the market economy in that despite the existence of externalities and conflict, firms in a market economy will in the long run will attain equilibrium through bargain and this will ensure proper allocation of resources and property rights
The price elasticity of demand is a measure of the responsiveness of the quantity demanded as a result of change in the price of a good or service, high price elasticity of demand means that when price is increased by one unit then demand will decline by one or more units, there are those goods and services with inelastic, elastic and perfect elasticity of demand.
Income elasticity is also a measure that aids in determining the responsiveness of demand to ...
Income elasticity is also a measure that aids in determining the responsiveness of demand to changes in the price of a product, it measure the change in demand of a product as a result of an increase or decrease in income.
In the last 10 to 15 years most firms have experienced elastic price elasticity of demand, this has been attributed to the fact that there are many firms in the market and also existence of substitutes in the market, as a result of this an increase in the price of a good will lead to a decline in the demand for that good due to existing substitutes and alternative.
Define returns to scale. Do you think that most businesses are increasing, constant, or decreasing returns to scale.
Returns to scale is a term used in production, firms will in most cases want to determine the optimal level of production and a firm will increase production depending on the returns to scale, when a firm increases inputs by one unit and the output increases by less than one unit then we have decreasing returns to scale, if the firm increases inputs by one unit and the output level is equal to one unit then we have constant returns to scale, finally if the firm increases inputs by one unit and output increases by more than one unit then we have increasing returns to scale, most businesses will produce at the optimal level of production and this means that they will produce at the point where they experience constant returns to scale and if production increases by more units they will experience decreasing returns to scale.
Define monopolistic competition and oligopolies. Provide two real world examples.
In monopolistic competition there are many firms and many buyers, the market is also characterized by few barriers to entry, product