Proprietorship refers to a type of business that is owned and run by one person. The individual is responsible for all the decisions and finances of the entity. The entity has no legal separation between the business and the owner. The major advantage is that decision-making is quick since there the owner decides alone without consulting any other person. On the other hand, the limitation of this business entity is that it has thin capitalization since the source of finance is limited.
Partnership refers to a business entity that is jointly owned by at least two individuals. The parties involved are guided by an agreement deed in running the operations of the business. One of the advantages is that it facilitates division of labor as well as specialization since partners have different skills and expertise. On the other hand, one of the setbacks is delay in decision making since all partners have to be consulted.
Corporations refer to a form of business structure that is incorporated and is regarded as a separate legal entity. The owners have limited liability, and as such, the business can sue and be sued as a separate entity from the owners.Â
When quantity supplied increase and the demand is elastic, the price of the commodity will decline, quantity will increase, and the total revenue will increase, as well.
When quantity supplied decrease, and the demand is inelastic, the price of the commodity will rise, quantity will fall, and total revenue will rise.
The effect of an improvement in technology is that supply will increase, quantity will also rise, price will fall, and total revenue will fall. On the other hand, deterioration in technology will result in price rise, quantity fall, and a fall in total revenue since there is a decline in supply.
The products are classified as normal and inferior, and as such the products respond differently to changes in price. The nature of the product, for instance, inferior goods respond proportionately to a change in price, while normal goods do not respond to a change in price. This means that necessities have a price elasticity (|E| <1) and inferior goods have price elasticity (|E| > 1).
A trip to Europe will have a greater elasticity of demand, since the demand for the trip will greatly respond to a change in price. This is because the proportion of income spent is huge, and the consumer can feel the impact of a price change.
A permanent increase in income will have no effect on supply of the commodity, but the demand curve will shift upward from D1 to D2.Â The price of the commodity will rise, and the quantity demanded will also rise. On the other hand, a permanent decrease in income will result in a downward shift demand curve from D2 to D1, and the price of the commodity will decline, and quantity demanded fall as well.
In a perfectly inelastic demand market, an increase in demand will lead to rise in price, and an increase in total revenue. However, the quantity demanded will remain unchanged.
The proportion of income spent on a product explains the difference in income elasticity of demand. This is because products that require huge proportion of income will respond slightly to a change in income, compared to those that require small amount of income.
Controversy between optimists and pessimists
The demand for oil is less elastic, and as such, the supply for pessimists and optimists vary. Given the standard price for oil, optimists will have S2 supply curve so as to benefit from the high price that result due to less elastic demand, while pessimists will have S1 supply curve since they fear a decline in price that may result to losses.Â