Acknowledging the Economic concepts

Situation 1: To analysts, Indian industry will be able to take advantage through offering products at low prices.

Here, basically the producers’/service providers take advantage of the buyer’s willingness to pay as less as possible & attain the best out of it. The producers thereby try to lower their prices to attain cost leadership over its competitors & increase their overall revenues using the economic concept “PRICE ELASTICITY OF DEMAND” (PED).

                      PED refers to percentage change in quantity demanded due to percentage change in price. If the changes in price have less effect on quantity demanded, then it is said to be inelastic & If it has significant changes then it is said to be elastic. The pricing decisions are made as follows:

a)       If goods are elastic – Reduce price to increase revenues.

b)      If goods are inelastic – Increase price to increase revenues.

c)       Unitary elastic – Hold price constant, no effect on revenues.

Situation 2: Many star hotels routinely offer unlimited buffet meals.

Buyers are usually determined to buy goods/services which offer incentives, then to the goods which offer only the benefit for which it is paid. Therefore, Hotels offer unlimited buffet meals to attract large number of customers & thereby increase their revenue which would automatically mean Profit maximization. As people consume more additional units their marginal utility also decreases & they wouldn’t want to eat anymore which means no huge additional costs incurred due to offering of incentives.

Situation 3: We see more and more domestic tourists visiting beaches rather than religious places as seen earlier.

This might be due to increase in income levels among the people, that they have improved in their Standards of living thus are more concerned in spending money for fun or enjoyment related activities than being religious & absolute.

Situation 4: Increased usage of combination of skilled labour & technology is believed to result in increased output in manufacturing industries.

If the inputs are increased by a said percentage then if the output is said to increase more than proportionately, it is “Increasing Returns to scale”. Here the percentage of change is not specified, so assumed it is more than proportionate to the increase in inputs.

Situation 5: We often see keen interest especially among young men & women to participate in fashion shows.

Incentives govern the prospective buyers, which means the young men & women are interested to participate in fashion shows due to the opportunities (or incentives) arising out of it, like TV show offers, Anchoring, Modelling etc., which would help them pursue their goal.