Economics Commentary

Economics Internal Assessment Writing a Commentary on News article Task 1 publicize Pharmaceutical giant Paladol misjudge its market by height the cost on its best-selling headache relief tablet. Price ductileity of exact (PED) is a measure of the responsiveness or sensitivity of consumers to a change in the hurt of a particular reasonedly. In this article, Paladol raised the price of its product, which was a mistake there ar a lot of former(a) medicines for a headache and most of them would be cheaper which is what Paladol should score considered before raising their price.PED= Percentage change in bill learnedPercentage change in price=%? QD%? P Cross-price elasticity of take up (XED) measures the responsiveness of consumers of a particular good to a change in the price of a related good, both complements and relief pitchers. In this article, however, we result be focusing more on the substitute goods. XED= Percentage change in quantity of good APercentage change i n price of good B=%? QA%? PB Substitute goods are goods or products that one might easily use in place of other because theyre so similar, an increase in the price of one may lead consumers to switch consumption to the substitute.The substitution effect (which underlies the law of demand) states that as the price of a good decreases, consumers switch from other goods to this good because its price is comparatively lower. As the price of Paladol increases we can see the substitute effect, mass switching from Paladol which is expensive to Tylonel, for example because its price is still the same which is cheaper than Paladol. posit is a meander showing the various amounts of a product consumers involve and can purchase at differentpricesduring a specific gunpoint of time.When Paladol increased its price for a particular headache relief medicine, consumers responded by decreasing their purchase of that expensive product, which decreased the quantity demanded a attempt up and lef t along the demand wind. Consumers allow now demand another good that is cheaper, a substitute, for example tylonel. interpret A represents Paladol. As the price increase for the product the supply decreases (a shift of the supply curve to the left) because the producers want to make more earnings and increase their total tax revenue.However, the demand is slowly decreasing for Paladol as people realize that there are cheaper headache relief medicines a movement up and left along the demand curve as was mentioned earlier. So, consumers start switching to substitute goods. Graph B represents Tylonel (a substitute good for Paladol). As the demand for Paladol decreases, the demand for tylonel starts change magnitude a shift of the demand curve to the right. This happens as its slight costly for consumers.The total revenue for Paladol will definitely decrease overdue to the decrease in quantity purchased and that will also decrease their profit as the cost is now more than the s ales. However, the total revenue for Tylonel will now increase in response to the decrease in Paladols decrease of quantity demanded. Paladol misjudged their market by thinking it has a comparatively inelastic demand and that if they increased their prices a little it wont change the quantity demanded by much.A firm producing at a quantity and price combination along the inelastic range of its demand curve can always benefit by reducing its output and increase its price, since consumers will be relatively unresponsive and total revenues will thereof increasethat didnt work well with Paladol. As their demand wasnt inelastic, that plan couldnt work out for them. They had a relatively elastic demand and one of the reasons of why they beat an elastic demand is that they have a lot of substitute goods and competition in that particular good (headache relief medicines are very common).As a result of this misjudgment made by them, the quantity demanded decreased and caused a decrease in the total revenue and profit made by Paladol as well. Due to their bad decision, Paladol will certainly suffer a loss which is a decrease in total revenue. However, their competition (firm of substitute goods) will gain more consumers thusly increasing their total revenue. The consumers wont suffer or in other words they wont be affected by Paladols decision to raise their price as they will have many substitutes to choose from.As Paladol is producing at an output and price combination along the elastic range, the firm could benefit if they change their prices again, this time by let down them since consumers are relatively price sensitive and the percentage increase in quantity sold will exceeded the percentage decrease in price, meliorate the firms revenue figures and giving Paladol a competitive emolument over the market of headache medicines once again.