EconomicsNotes

  Demand curves are made up of points at which the quantity consumed of a good or service by a consumer is balanced against its price. This usually reflects a situation in which consumers will pay less given a greater quantity of a good on sale, and more when there is a lower quantity around. Explaining how these points arise is therefore different from explaining the causes of demand—which are, broadly, income, fashion taste and preference, and the price and availability of substitute and complementary products. It is also different from explaining the slope of the demand curve, which is a matter of elasticity (and which can be affected by non-price hedonic factors such as effective advertising, or addiction.) There are two convincing theories of why the points which make up a demand curve arise. One is based on the theory of marginal utility. The second is based on the idea of consumer indifference. Marginal utility theory holds that a consumer will look to the usefulness der...

    A firm is an economic entity engaged in business. Economic theory assumes that the firm, like the consumer, maximises its self-interest. This self interest is however the product of the interplay of market structure, business organisation, and chosen or required objective. So, for instance, some firms might choose to profit-maximise, some to profit satisfy, some to revenue maximise, and some to sales-maximise, or even engage in loss-leading predatory behaviours. Oligopoly firms might take their cue from other firms, and find that price-maximisation is only really possible if they can join a cartel; imperfectly competitive firms might sustain a loss in the short run, covering their variable costs and making a contribution to fixed ones, if they think that this will lead to ultimate survival in a temporarily tough market. These decisions often relate to the nature of the firms. A sole trader’s objective, for instance, may include the freedom and control that working for on...