Guys can someone please help me with explaining the following economic questions; i have an exam tomorrow and just don't understand how this works.
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- Thread Starter
- 28-02-2018 08:29
- 28-02-2018 08:55
2. The question states that the technology for cutting hairs has not changed much and the technology for cutting wheat has changed drastically. From this it can be inferred that the relative price for haircuts has remained near the same as there has been no major change in production, so assuming there has been no dramatic change to supply or demand price will remain the same. It is also likely that barbers incomes have not changed much assuming that demand and supply has not greatly changed. As the technology for growing wheat has improved drastically it is likely that it is quicker and easier to produce wheat, so there is likely to be a greater supply of wheat. If there is greater supply than demand then price must decrease to increase demand, so from this we can infer that the price of wheat has decreased, This means that the income of farmers may have gone down.
3.If a good has a low price elasticity of demand, then a change in price will lead to a smaller change in demand. So if technological changes lead to a decreased price of the good, then a good with a higher price elasticity of demand will see an increase in demand. If there is a low price elasticity of demand, it is likely that there will be little total spending on the good to increase production. So high price elasticity of demand will lead to a rise in the share of the economies total spending if technology increases, as technology increasing will likely lead to lower prices.
Hope this helps.