For:
Questions and answers email: theotherwomaninmarriage@gmail.com
QUESTIONS AND ANSWERS:
1.
Distinguish
between a demand function and a demand curve.
What relationship is indicted by a shift in a demand curve?
Answer:
Demand Functions: can be specified either for an entire industry or for an individual
firm. Somewhat different independent
variable would typically be used in industry, as compared to firm, demand equations
with perhaps the most important difference being the fact that variables
representing competitors’ actions would be stressed in firm demand
functions. For example, in a firm’s
demand function, the price charged by competing firms and a second advertising
variable measuring competitor’s advertising expenditures might be included.
Demand for the firm’s product would
be negatively related to its own price, but positively related to the price
charged by competing firms. Similarly,
demand for its products would be positively related to its own advertising
expenditures, but would be probably decrease with additional advertising by
other firms. Since firm and industry
demand functions differ, different models or equations must be specified for
estimating the tow kinds of demand. However,
this matter need not concern us in this chapter, because the demand relationships
developed here are applicable to both firm and industry demand functions.
The Demand Curve
The demand curve function specifies the relationship between quantity
demanded and all the variables that determine demand. The demand curve is that
part of the demand function which expresses the relation between the price
charged for a product and the quantity demanded, holding constant the effects
of all other independent variables.
2. What
is the acceleration principle? How is it related to each of the following:
i.
Derived demand
ii.
Capacity
iii.
Technological stability
Answer:
HOW ACCELERATION PRINCIPLE RELATED TO DERIVED DEMAND, CAPACITY AND
TECHNOLOGICAL STABILITY
This notion of derived demand for producers’
goods leads to the economic concept known as the acceleration principle, which
states that, when the demand for a final goods increases, the demand for the
relevant producers, good will increase at a faster rate. The same relationship holds for downturns in
the demand for producers’ goods they are often much greater than the decline in
demand for the final product.
The acceleration principle is best
known in business analysis and macro economics where the impact of a change in consumption
of business inventories often causes investment to fall and precipitate a decline
in economic activity. The acceleration principle
helps to explain one very important fact of economic life; that capital goods industries
experience much greater cyclical fluctuations than consumer goods industries. This obviously has important implications for
business firms manufacturing capital equipment and for communities whose
economic base is largely the manufacture of capital goods.
The acceleration principle is an
important tool for examining the derived demand for capital goods. As with most theoretical constructs, however,
it has empirical limitations. First, the accelerator effects, will take place
only if the original output of the final product made full use of the available
capacity.
Second, the acceleration principle reflects
only one kind of stimulus for demand of producers’ goods, the stimulus of increased
demand for the final product is viewed as more than just a temporary
fluctuation.
References:
Nathaniel C. O. (2002
-2010), Production Management Concepts and Cases, Enugu: Precision Publishers
Limited.
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