Effects of price change

There are thousands of possible scenarios for that question. If the question is related to macroeconomics, them talk about Aggregate Demand, Aggregate supply, the nominal GDP (i+g+c+nx) and etc.

If it the question is about how the change of price for one product affects the supply or demand of other product, then the first step is to check if these goods are complements or substitutes. For example, petroleum and cars are goods complements. If price for petroleum rises, demand for petroleum falls. It will lead into a lower demand on cars.

It is also recommended to mention the market structure (in the situation of oligopoly the decrease in price levels for one company’s products will force other company to react and lower their prices as well).

Elasticity of demand and supply could also be helpful here.

25. Optimal technological substitution.

Technological substitution can occur when a technology offers customers various benefits that can replace benefits they were getting from products or services based on another technology. Companies defining themselves by the technology used in their existing products or services are most at risk from technological substitution as they are less likely to be in tune with competing technologies that may supply the same benefit.

Technological change - a lower-cost production process, usually require firms to invest in additional fixed assets (equipment, plant). Once the change is implemented, a firm starts manufacturing products with lower total costs, increasing the output and moving the supply curve to the right side. In perfectly competitive markets high-edged firms usually make economic profits.

The decision concerning the technological change is made based on the comparison of total costs of the technology and total benefits of its implementation.

Date: 2015-02-03; view: 830