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Economics for Managers

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Alternatively, using finances of the firm as a scarce resource, to produce more recliner chairs, more finances have to be allocated to this department while scaling down the resources allocated to another department, say, the department producing home entertainment systems. A change in income affects the demand of a product. When the income increases, the consumers have more disposable income and, therefore, they can afford more. This increases the demand, shifting the demand curve to the right from D1 to D2 as shown in the graph below. The supply curve remains as it is while the equilibrium shift upwards to the intersection of D2 and the Supply Curve. For normal goods, as households incomes increase the demand for these goods increases.

This is because they can afford more. However, for inferior goods, the quantity demanded reduces as incomes increase. This is because households consume inferior goods due to low incomes. An increase in income means they can replace inferior goods with normal goods. Therefore their demand decreases. For the recliner chair, the quantities demanded have increased over time as incomes in the UAE increase.

The recliner chair is, therefore, a normal good. Where the price of a competing product’s price increases, this increases the demand for the firm’s product as consumers opt for the cheaper one. This shifts the demand curve towards the right from D1 to D2 as shown in the graph below. The supply curve remains as it is while the Equilibrium shifts to the intersection of D2 and the Supply Curve. Where a competing product’s price decreases, this decreases the demand for our product as consumers prefer the cheaper product.

The effect is a shift of the demand curve towards the left from D1 to D2 as shown in the graph below: The recliner chair is a product that is mostly bought for adults. A change in the number of consumers affects the quantity of products demanded. An increase in the number of consumers’ leads to an increase in the number of reclining chairs demanded, therefore, a shift in the demand curve to the right from D1 to D2 as shown in the graph below. The Supply curve is not affected while the equilibrium shifts to the intersection of D2 and the supply curve, with equilibrium price P2 and equilibrium Quantity Q1.Where the number of consumers decreases, the quantity of reclining chairs demanded decreases, therefore, a decrease in the demand (Turvey, 1971).

This causes a left shift in the demand curve as

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preview essay on Economics for Managers
  • Pages: 10 (2500 words)
  • Document Type: Essay
  • Subject: Business
  • Level: Undergraduate
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