Cambridge International as and a level Economics Ebook

c
Why does this happen?
d
What do you notice about the total revenue 
fi gures as price is raised from $0 to $5?
e
Why does this happen?
f
Where is total revenue maximised?
2
If a government is interested in raising more revenue 
from indirect taxes, such as a general sales tax or excise 
duties, should it tax products that are price elastic or 
price inelastic? Explain your answer with diagrams and 
examples drawn from your own country.
in forecasting the future demand for a whole range of 
consumer goods and services. In emerging markets like 
China and India, for example, as incomes increase then 
people demand more cars. Production changes need to 
occur to satisfy this demand and governments need to 
build more roads to accommodate the increased demand.
If the YED for a normal good is greater than 1, then 
demand will be expected to grow more rapidly than 
consumer incomes. Th
is is usually the case in times of 
sustained economic growth such as that experienced by 
China and India in recent years. During a recession, as 
experienced by many developed economies from 2008, 
businesses producing these types of product will be 
extremely vulnerable given the reduced demand.
If YED is negative, in the case of inferior goods, fi rms 
that produce these can expect their sales to decline when 
the economy is doing well; at a time of recession, though, 
demand for their product is likely to increase.
SELF-ASSESSMENT TASK 
2.12
1
What will happen to sales of a product whose 
YED 
=
+
0.6?
2
How could you use YED values to advise a 
company on how to produce a mix of goods 
and services that would reduce the risk oft en 
associated with only producing a very narrow 
range of products?