Question

OK, now say there are CRS in the production of a good, and market demand for that good falls ceteris paribus. What would happen to price?

What are some of the variables that would cause the market supply of a good to increase or decrease?

What are some of the variables that would cause the market demand for a good to increase or decrease?

Most actions have what's called an opportunity cost. The opportunity cost of action X is --39--

So say the going rate of return is 5%, and firm A has $20 million that it could use to start doing business in another part of the country. What is the opportunity cost of that action?

Answer 1

If market Demand of a good falls, then at the existing Price there is excess supply of Good. There will be Competition between buyers and this will lead to decrease in the Price the Good.

Market supply of a Goods depends upon Cost of inputs which varies Inversely with market supply, the Level of technology which varies positively with market supply and number of sellers which also varies positively with the market supply of Goods.

Market demand would be Increased by- Increase in Consumer Income, Favourable change in taste ne preference of Consumers, Increase in the Price of substitutes.

Market demand would be Decreased by- Decrease in Income, Unfavourable change in Consumer tastes and preferences and Decrease in the price of substitutes.

Opportunity cost of an action X is the value of next best alternative foregone to do X.

Going rate of Return= 5%

Opportunities cost of that action is the return foregone i.e., (5/100)× 2000000= $100000