1. The demand curve for a product is given by Qx= 1,200 – 3Px – 0.1Pz Where Pz SR300. What is the own price elasticity of demand when Px= SR140? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to a. charge a price below SR140? b. What is the own price elasticity of demand when Px= SR240? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price above SR240? c. What is the cross price elasticity of demand between good X and good Z when Px=SR140? Are good X and good Z substitutes or complements?

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Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.