Econ final exam Essay Example | Topics and Well Written Essays - 1500 words

Econ final exam - Essay Example The price of alternative good, Y (PY) while the consumers income remains constant From the budget constraint PL1, the optimal use is at point e1 whereby the end user buys OX1 units of commodity X and OY1 units of product Y. The optimal consumption combination is located on a lower indifference curve U1. In the event that the price of commodity X falls, the buyer will tend to buy more of the good, budget constraint hence becomes flatter. The optimal consumption is now at point e2, whereby one buys OX2 units of X and OY2 units of Y. The consumer’s total utility, therefore, increases with the decrease in the price of the good with the optimal consumption combination at the indifference curve U2. This measures changes in buyer’s optimal consumption combination as a result of changes in the price of one commodity, say the price of good X (PX), which is an inferior good. The price of another good, say good Y (PY) and consumers income remaining constant. A market is a collection of consumers and producers, where consumers determine the demand and producers control the supply. In a competitive market, it is best understood in proper economic theory, where they depend on the numbers of both buyers and sellers available. In a market where the numbers of sellers drop to only two sellers, the economy is referred to as a duopoly market the price of the goods will fall below the optimal level. This is as a result of the tag war between the organization and sellers in the market. The sellers will try to win the available customers by providing a conducive price. (Jean 1991) A market with a single seller and multiple buyers is a monopoly. The prices in such kind of a market tend to rise above the optimal price of the commodity due the forces of demand and supply of the goods. With many buyers competing for a single commodity, the seller tend to