Samarkand iktisodiyot va servis instituti

Lesson 16. ELASTICITY OF DEMAND AND SUPPLY.part II.
THE JADDISTS AND BASMACHIS.

Ilova 1 (16.1)

Types of company
There are five main types of legally constituted company. Each type of company has different characteristics. Tick the correct characteristics for each business type, or write 'possibly' if the characteristic could apply.

	Single individual owns company	Two or more owners/ directors	Quoted on stock exchange	Workers run the company	Unlimited liability	limited liability	Owner is self- employed
Public limited company
Private limited company
Sole trader
Partnership
Co-operative

Introducing key terms in financial planning

Complete the sentences below with a word from the box.

break-even point	gross profit margin	profitability	turnover
core activity	net profit margin	selling costs
cost of sales	overheads	setting-up costs

1 .................. shows how a business might make profits. It is calculated from the
relationship between profit and the capital invested in the company, and between profit and turnover.
2 The ................ of a business is the total amount of sales, before costs are
deducted.
3 The.................... of a business is the main product or service which the business
provides, e.g. for FIAT it is cars.
4 The ......................... is the profit the business makes before costs are considered.
5 The ............................. are the costs involved in creating a new business.
6 The ................... are the normal costs of a business, which do not change if
production rises. They are also referred to as indirect costs or fixed costs.
7 The .......................... is a calculation of profit after deducting the cost of sales
and overheads.
8 The .......................... are all the costs directly associated with producing the
products.
9 The ........................ is the amount of sales a company needs to cover all costs.
10 The ...................... are all costs directly concerned with getting customers to buy
products and moving them to the customer.

3. The third type of elasticity of demand is known as cross elasticity of demand. It is a measure of the responsiveness of demand for one product to a change in the price of another (either a substitute or a complement). The formula for the cross elasticity of demand (Cε_d) is:

Cεdab = %∆Qda / %∆Pb

If a good b is a substitute for good a, a’s demand will rise as b’s price rises. In this case, cross elasticity will be a positive figure. For example, if the demand for butter rose by 2% when the price of margarine (a substitute) rose by 8%, then the cross elasticity of demand for butter with respect to margarine would be:
2% / 8% = 0.25
If good b is complementary to good a, a’s demand will fall as b’s price rises and thus the quantity of b demanded falls. In this case, cross elasticity of demand will be a negative figure. For example, if a 4% rise in the price of bread led to a 3% fall in demand for butter, the cross elasticity of demand for butter with respect to bread would be: – 3% / 4% = – 0.75
Firms will wish to know the cross elasticity of demand for their product when considering the effect on the demand for their product of a change in the price of a rival’s product. These are vital pieces of information for firms when making their production plans.