BUS400 Lecture Notes - Lecture 3: Demand Curve, Normal Good, Orange Juice

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11 Mar 2019

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Answers to problems and exercises: table 3. 9. Price ($) original quantity demanded new quantity demanded. A rapid movement of people into the community will increase the demand for pizza. At each price, a greater quantity of pizza will be demanded, as shown in the third column of the table. The demand curve based on the first two columns is shown below as dd. The new demand curve is shown as d1d1: table 3. 10. Explanation: in all of the events and the items listed in the table, except for e), non- price determinants will shift the demand curve a change in demand. (a) (b) If people expect the price of novels to rise in the future, they will tend to buy their novels now to avoid the higher future price. This is an increase in demand shown by a shift of the demand curve from dd to d1d1. (b) apple juice and orange juice are substitutes.

Related Questions

3. (15 points) Saw Inc. manufactures saw in Warsaw. People never saw a saw that could saw like the saw they saw in Warsaw. So, Saw Inc. gained monopoly power in the saw market over time as all other firms exit the industry. Currently, saws are produced at a constant marginal - average cost of $10 per unit. The demand curve for saw is presented in the figure below. The equilibrium price charged by the monopolist is , the number of saw produced is and economic profit is $ Since the monopolist produces inefficient level of output, the deadweight loss due to monopoly in the saw market is $ You must show your work on the graph. Price ($) #Demand 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000 7500 8000 8500 Number of Saws

As we have learned, many economic topics have been obsolete for decades. Yet, some topics and concepts continue to stand the test of time and are therefore useful today. Price point elasticity is a hallmark subtopic of microeconomics that is also considered a serious sub-topical contender for the modern body of knowledge surrounding our study of a sustainable economy. The reason for the legitimacy is that it based upon the mathematical ratio of price and quantity demanded along the demand curve. This basic calculation is in actuality a simple ratio that is based upon the linear slope relationship of price and quantity demanded for a specific product or service. Results render quantitative decision support for price adjustments and their consequence. For every one percent increase in price, the price point elasticity tells you how much less quantity will be demanded as a percent. Conversely, for every one percentage decrease in price, price point elasticity tells you how much more quantity will be demanded, as a percent.

Results are percentage so further calculation is needed to determine if the price adjustment is justified by a loss or gain relative to leaving the price the same. For example, the price demand schedule below says that for every one percent change we will see a two percent negative change in quantity demanded. So if we change the price five percent, we will see a negative impact of ten percent less product sold. If our product sells for $40 and we increase it to $42 we will see a drop of 200 sold. If the scale of our schedule is in millions sold, we will see a decrease of 200 million sold. Do you think it is worth the trouble of changing the price? Why?
We may gain $4000 by increasing price but we will also may lose 200 sales and at the new price of 42 dollars so our estimated loss of $8400 will be far greater than the gain. Of course, these are estimates and real world pricing may be in pennies instead of dollars, especially in this price range and other factors must be considered such as substitutes, complements, changing trends, taste, obsolesce, incomes, and a series of demographic fluctuations that are representative of the population of customers. Nonetheless, isolating price and quantity is the first exercise when considering the demand for a product or service.

Price	Demand
50	1000
45	1500
40	2000
35	2500
30	3000
25	3500

Table 3 Price/demand schedule for some product or service

BUS400 Lecture Notes - Lecture 3: Demand Curve, Normal Good, Orange Juice

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