Question.3122 - Disc question 1: Think about a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/pedicure, video game, etc.). Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product (T-I-P-E-N and P-R-E-S-T). What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product. Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically? Disc question 2: Think of another good that you have purchased recently (or you could continue with the good you selected in TDA I). Be specific (e.g. is it breakfast cereal in general or Cheerios cereal specifically). If the price of this item increases, how would this affect the quantity of the good that you consume? Is the Demand for this good Price elastic or Price inelastic? Justify your classification by talking about the determinants of elasticity as they apply to this product. Say price is on the rise for this product and you are the manager of a store, would you be thrilled to be selling this product? Under what circumstances would you want to own a business that sells this product? In other words, how does an increase in price for this good affect your Total Revenue? Using specific examples, relate the concepts of Cross Elasticity and Income Elasticity to this product.
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Disc question 1: Think about a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/pedicure, video game, etc.). Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product (T-I-P-E-N and P-R-E-S-T). What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product. Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically? Solution: Few days back I had made a purchase of soda for $2. There were many substitutes available for the same with different price ranges. I purchased the one I was pretty comfortable with and have tried many a times. I decided to purchase this because my demand was higher as I am sure the quantity demanded (move along the curve) is higher for this product. However, if I had some gift coupon and could have got free soda for that, the demand curve would shift to the right and I could expect the price the following week to increase. At the price of $2, the quantity which I bought was 10 but when it would be free, I could have taken 20 but slowly the rate of this increment shall decrease due to law of diminishing marginal utility. The utility for 50 th soda would not be the same as for the 1 st one. As a result, if the price increases to $2.50 next week, my quantity demanded shall fall to 8. Disc question 2: Think of another good that you have purchased recently (or you could continue with the good you selected in TDA I). Be specific (e.g. is it breakfast cereal in general or Cheerios cereal specifically). If the price of this item increases, how would this affect the quantity of the good that you consume? Is the Demand for this good Price elastic or Price inelastic? Justify your classification by talking about the determinants of elasticity as they apply to this product. Say price is on the rise for this product and you are the manager of a store, would you be thrilled to be selling this product? Under what circumstances would you want to own a business that sells this product? In other words, how does an increase in price for this good affect your Total Revenue? Using specific examples, relate the concepts of Cross Elasticity and Income Elasticity to this product. Solution: Here I shall take example of takeout meals. We are used for the takeout meals and consume it more than 5 times a week. Recently the price has increased from $20 a packet to $30 a packet. As a result of this, the quantity demanded by us has gone down. Now we try to consume max 3 times the takeout meal. This means the price elasticity of the product is elastic. Main reason behind this is there are many substitutes available for the takeout meal. We can easily take a burger or a sandwich. Since the price elasticity for demand for this product is elastic, the slope of our demand curve, although negative, is close to 0 and our elasticity is also negative but close to 0. As a manager of the store, I would not like the price increase on this cereal. Although it seems like if I was the manager of the store I obviously would not like the price increase as this shall decrease my sales for this product. Incase the price elasticity was inelastic, I would be more than happy if the price would have increased. But that’s not the scene. The price increase from $20 to $30, the demand would fall but not majorly. The elasticity would be close to -1 and I would probably be a monopoly. In case of price rise the total revenue would increase.More Articles From Economics
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