1: In order to gain the maximum revenue, the suppliers implements strategies. There are a number of ways in which the suppliers are able to increase their revenue depending upon the market demand and supply of the product.
In a perfectly competitive market, the suppliers intend to lower the price of the products offered to the customers in the market, when the market economy is slow. Lowering the price level allows the supplier to sell more products and earn higher revenue.
Li & Zhang, (2013) stated that if the demand curve of the product supplied is perfectly elastic, then the customers are likely to purchase lesser quantity and thus, reducing the price is beneficial in increasing the revenue (Refer to appendix 1). From the figure, it can be inferred that at price level P1 (Rs. 5 per unit) the amount sold is Q1 (10 units), then the revenue obtained by the supplier is P1*Q1 = 50. On the other hand, with the decrease in the price level P2 (Rs. 3 per unit), the quantity sold is Q2 (25 units). The new revenue earned is P2*Q2= 75.
Therefore, the supplier is able to increase the revenue by lowering the price, if the demand is perfectly elastic (Negash & Kirschen, 2014).
The supplier can decide to raise the price level of the goods so as to boost up the revenue if the products offered by the supplier have a perfectly inelastic demand curve.
For such a commodity, the consumers would purchase the same quantity of product even if the price level is high (Refer to appendix 2). As per the diagram, the initial price level is P1 (Rs. 3 per unit) and the quantity sold is Q1 (8 units) and the revenue earned is P1*Q1= 24.
The perfectly inelastic demand curve indicates that rise in the price level will not affect the demand to large extent. The new price level is P2 (Rs. 7 per unit) and the quantity sold is Q2 (6 units). The new revenue thus earned is P2*Q2= 42.
Every economy has diverse natural, capital and human resources and has separate ways in which the resources are combined. Thus, a country is not similarly resourceful in producing all goods and services. The decision regarding the producing of goods have certain opportunity costs (Johnson, 2013).
If a country is efficient in producing all the goods efficiently than any other country then it has an absolute advantage. However, Feenstra, (2015) opined that trade is necessary as the notion of comparative advantage is present, which is a condition in which a country produces a particular product at a lower opportunity cost than other economies. Hence, even if a country has absolute advantage it can engage in trade with other countries that have a comparative advantage in producing the particular goods.
The engagement in the trade will allow the countries taking part in the trade to gain a mutual benefit, as absolute advantage is a condition where the there is no mutual benefits. Thus, a country is able to produce all products more competently than the other economies even have a need to engage in trade to gain further advantage.
Feenstra, R. C. (2015). Advanced international trade: theory and evidence. Princeton university press.
Johnson, H. G. (2013). International Trade and Economic Growth (Collected Works of Harry Johnson): Studies in Pure Theory. Routledge.
Li, C., & Zhang, F. (2013). Advance demand information, price discrimination, and preorder strategies. Manufacturing & Service Operations Management, 15(1), 57-71.Negash, A. I., &Kirschen, D. S. (2014, July). Optimizing demand response price and quantity in wholesale markets. In 2014 IEEE PES General Meeting| Conference & Exposition (pp. 1-5). IEEE.