Can’t you just say that if a particular company say, Apple will face tariffs, they will experience a drop in revenue, and profit because total profit = total revenue – total costs rather than having to say Apples MC and AC curve will have to shift upwards? Because I never see people using the technical terms. It’s only for exams you use it.
In Economics, do you actually have to use all the cost curve and revenue terminology (MC, AC, MR, AR)?
byu/Sufficient_Leek2779 inAskEconomics
Posted by Sufficient_Leek2779
2 Comments
If you’re discussing economics or performing economic analysis properly, you probably want to be fairly precise about what may happen and describe things in a rigorous way. So yes.
If you want to make broad journalistic assertions and make casual assumptions, then perhaps no.
And your example is not at all certain as you seem to think. It isn’t clear that revenue and profit will drop because that depends on Apple’s ability to price in tariffs without loss of sales volume. In short the elasticity of demand plays a huge role.
Yes, you definitely have to use and understand them.
Taking your example of tariffs on Apple, tariffs increase the cost of importing which increases the marginal cost. But that doesn’t get mechanically passed through to revenue and profits.
What if demand for Apple products was completely inelastic? In this case cost goes up but revenue also goes up and profit is unchanged.
Or what if demand for Apple products increase, say because a competitors product has an even higher tariff on it. Then we could potentially see revenue and profit go up.
So you have to understand what the marginal changes and their interaction is with other factors to understand what the impact is on other outcomes.