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Free Main Principles of Economics Essay Sample

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1.) According to the Federal Housing Finance Agency house price index, U.S. housing prices declined throughout 2008, 2009, 2010 and 2011. What are two demand determinants and two supply determinants that might explain the broad decline in house prices that occurred in those years? Is the market currently in equilibrium?

Houses prices in the United States tend to show a lot of seasonality, with values lower during the slow home-selling months of autumn and winter while higher during the months of spring and summer. Over the last few years, for instance, 2008 up to the year 2011, there has been generally a decline in the house prices as shown by the report from Federal Housing Cooperation Agency. This could be attributed to some of demand determinants such as income and future expectation. The demand of goods or products depends on the income of the consumers. Generally from about 2008 there was a general global financial melt down which played a very big negative role on the US dollar value. This could have led to the reduction of income to the American citizen declining the demand for house. A reduction in demand will eventually lead to a decline in house price. There could be future expectation for prices to fall further which would have reduced demand eventually causing a decline in their prices. Seller’s expectation and number of sellers are some of the supply determinants that can explain the decline in house price. The decision to sell goods depends on expectation of future prices. If the sellers expect prices to fall further, they will sell at low prices.

2.) Movie theaters generally charge the same ticket price for all movies with evening show times, regardless of popularity. This pricing strategy causes surpluses (empty theater seats) for unpopular films and shortages (turning away prospective viewers) for popular films. How can movie theaters improve the pricing strategy to eliminate these inefficiencies? What is a disadvantage to your suggested approach?

The need to employ cost based pricing strategy. This a strategy which involves setting a price by adding a percentage linked to the value or a fixed amount of money (Andrew, 2009). This is because the viewers will be interested on the value the get from the money incurred. An advantage of this strategy is that the business will be informed that its cost is covered. The main disadvantage associated with this strategy is that cost-plus pricing may make the business unpopular if there are many competitors in the market.

 3.) All firms can increase the volume of goods or services sold by cutting prices. But the volume (quantity) of goods or services a firm sells differs from a firm’s revenues (price time’s quantity). Select your firm or a firm not previously discussed. What good or service does the firm sell? Is the price elasticity of demand elastic or inelastic for that good or service? How should the firm alter the price of the good or service to increase revenues?

Airline business is a business which its services experience elastic demand curve with regards to price charged. The higher the price charged, the less the people who are willing to travel using the airline. The firm in this industry can increase revenues by applying optional pricing (Gregory, 2011). The company will tend to increase to the amount customers spend once they commence to start using the service. Extra charges increase the overall price of the service. These could be extra charges guaranteeing a window seat, extra legroom, extra for additional luggage or extra charges for reserving a row of seat next to each other.

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