What is the difference between a normal good and an inferior good

Goods can be classified into three types: inferior goods, normal goods, and luxury goods. a) Normal goods: these are the types of goods that get an increase in their demand, as the income increases. They also tend to decrease when the consumers level of income decrease. b) Inferior goods: these are the type of goods that gets a lower demand or decrease in demand terms when the income of the consumer increases. These goods are a direct contrast to normal goods. They would still have returns to recover. Assume there has recently been a decrease in the income tax, decrease in corporation tax and an increase in custom duty. Explain these taxes. How will these changes affect Ella Bridals? a) Income tax is the annual amount of tax that a government levies to an individual’s income or a business’s income in that country.

The government, demands filing of income tax returns for businesses and individuals every year to determine whether they owe any taxes. Giving a discount would increase the demand more thus they would make much more money than normal amidst the discount. Question 2 State and briefly explain two possible benefits and two possible costs to Ella Bridals for increasing its scale of production over time? Benefits 1) The economies of large scale buying and selling, during the purchase of raw materials, Ella bridals could easily secure favorable prices from the sellers of the raw materials. When it comes to sales, it was at their own advantage since they could produce more dresses at a time provided they had a quick execution of orders.

2) The economies of the overhead charges, in businesses, the costs of administration and distribution in huge businesses are much less. The overhead charges always remain the same whether the production is low or high. The elasticity of demand stands for the fact that people wanting Ella bridals dresses changes from time to time, sometime the demand is high, and sometime the demand is low. The main reasons are: a) Ella bridals have little competition in their locality; being ‘your destiny’ and ‘the big day special’ thus the demand is still very high. b) Ella bridals allow customers to choose from a variety of high quality customers, and also offer the option of dress customization which their competitors don’t offer. Diagram (demand elastic and price inelastic) See graph A Ella Bridals decides to open an outlet in China.

Using a supply and demand diagram show and briefly explain how this change will affect the business. Ella bridals are thus projected to have a high demand for their dresses (Camison et al, 2016, p. Diagram (an increase in demand) See graph B Question 3: State and briefly explain two advantages and two disadvantages of opening an outlet in China. Advantages a) Ella bridal will cut cost; they will cut costs on their expenditures as compared to the UK. The company usually buys some materials in china. Relocating to china means that they don’t have to pay for transport cost to UK and can still get better prices on the materials. Ella Bridals needs finance to further expand the business. Explain three ways in which the business can raise funds.

a) Loans and grants: most companies expand through loans from the bank. With the UK business doing well, Ella bridal has a huge credit thus making them easier to be granted a bank loan. They can get a loan from a favorable bank with a low interest rate, expand to China and then pay the loan monthly when the Chinese business starts. When the interest rates increase, the prices of bonds fall, and vice versa. The cost of borrowing for Ella bridal would be low. It is a company that is doing well in the UK market and is likely to do well in China. Banks would rush to charge them low interest rates so as to retain them as customers.

This would in turn cause high bond prices in the market thus become hard to invest in. The characteristics of this market are: a) All the businesses in the bridal industry maximize profits. b) The market in the industry has free entry and exit. c) All the businesses in the case study have similar good, bridal dresses. Question 4: State any two macroeconomic indicators. Explain how they will be affected because of a recent recession in the UK. This is a way to encourage the people to spend more to boost the economy. Some of the policies that will benefit them are: a) Cutting the rates of tax Cutting tax rates means individuals and businesses make more money annually. This way there will be much money in circulation in the market thus maintaining the economy.

b) Increment of tax free allowances Allowances that are not taxed being increased means that less money will be taxed from individuals and businesses. This allows people and businesses to retain more money thus boosting up the economy (Zilguris and Sarapova, 2017, p. This happens when it comes to agricultural goods and other goods that concern human consumption. c) Barriers could be placed to get other neighboring countries and states to comply with trade rules in the UK. This is more likely to be seen as trade sanctions. Price D Elastic 10 A 5 B D 0 1 2 3 Quantity Graph A S1 P D1 D2 Q An increase in demand shifts the curve to the right. Graph B References Camisón, C. , Jiménez-Naranjo, H. V.