Introduction
In simple, economics can be defined as a study of how people manage resources to satisfy the wants. Typically these resources are land, labor, capital and management. Economic principles can be applied at two levels macroeconomics and microeconomics. Macroeconomics focuses on the national economy as a whole and provides a basic knowledge of how things work in the business world. Microeconomics studies the behavior and reactions of basic economic units such as firms and individuals.
This paper will mainly focus on applying the concepts of price and income elasticity of demand to increase the company’s revenue. This paper will cover few details of profit maximization principles.
Theory: Basics of the economics
Economics is a study of the production, distribution, and consumption of goods and services. Microeconomics focuses on the behavior and purchasing decisions of individuals and firms. In a market economy goods and services are distributed through a system of prices. Goods and services are sold to those willing and able to pay the market price. The market price is determined based on demand and supply (website – investopedia).
Microeconomics analyzes the economy from the bottom up, by analyzing the economic decisions and tendencies of individuals and businesses. A crucial concept in understanding microeconomics is that of utility. Utility is how much a product satisfies and marginal utility is how much every incremental quantity of a product pleases people. Marginal utility decreases, for example, you eat fried chicken. The first piece's marginal utility is 5; the next piece's is 4, and so on. Marginal utility tends to drop as the number of products consumed increases. Demand and price is related to the marginal utility, not total utility. High marginal utility brings a high cost associated with it (website – Library thinkquest).
Consumers choose what products they want to buy by comparing its price and utility. They tend to pick the...