Question

Give a reason for each of the following statements:
(i) The fixed income group is adversely affected during periods of inflation.
(ii) Selling costs are higher in Monopolistic Competition.
(iii) High rates of taxes reduce the savings capacity in an economy.
(iv) The demand for newspaper inelastic.

Answer 1

(i): Wage earners and salaried class tend to lose during inflation as their salary fails to keep pace with the rising prices, second, even though wages and salaries may eventually rise during inflation, there is a time lag between the price rise and increase in wage and salaries.
(ii) To advertise the product, an organisation adopts sales promotion measures which give rise to selling costs. Selling cost is the expenditure incurred by a firm to promote the sale of its product. Thus, selling costs are high in monopolistic competition as there are close substitutes and many rivals.
(iii) High rates of taxes reduces the savings capacity as an individual's ability to work and save is adversely affected. Due to high cost of living, he is unable to save a part of his income.
(iv) The demand for newspaper is inelastic. As individuals who are habitual and prefer to read newspaper for hours and hours, will not postpone its use. Thus, it is inelastic for them.