Business Administration - Accounting & Financial Planning ECN502 Lecture Notes - Lecture 3: Demand Curve, Normal Good

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greenmuskrat329

1 Jun 2018

School

Seneca College

Department

Business Administration - Accounting & Financial Planning

Course

Business Administration - Accounting & Financial Planning ECN502

Professor

Sandra Wellman

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The Demand Curve

• A graphical representation of the inverse relationship

between quantity demanded and price

• Can be linear or non-linear

The Demand Curve

• Quantity demanded: a point on the demand curve

• Demand: the entire curve

Variables Affecting Demand: Income

• Income affects the demand for a product

– For most products, as the income of consumers

increases, the demand for a product increases

– Normal good: a product whose demand increases as

income increases

Variables Affecting Demand: Income

– Inferior product: a product whose demand decreases

as income increases

• Example: non-brand products

Variables Affecting Demand:

Prices of Related Products

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Document Summary

The demand curve: a graphical representation of the inverse relationship, can be linear or non-linear between quantity demanded and price. The demand curve: quantity demanded: a point on the demand curve, demand: the entire curve. Variables affecting demand: income: income affects the demand for a product. For most products, as the income of consumers increases, the demand for a product increases. Normal good: a product whose demand increases as income increases. Inferior product: a product whose demand decreases as income increases: example: non-brand products. Prices of related products: substitutes : products that fulfill the same needs. Pizza or hamburger: as the price of one product increases the demand for its substitute increases. Prices of related products: complements: jointly used products. As the price of a product increases, the demand for its complement decreases. Tastes and preferences: consumers" preferences for a product, a number of variables influence people"s preferences.

Related Questions

19. Which is the proper order of steps in the target costingprocess?

	A.	Analyze customer needs and wants, find the target cost, designthe product, determine the desired profit.
	B.	Design the product, analyze customer needs and wants, determinethe desired profit, find the target cost.
	C.	Analyze customer needs and wants, determine the desired profit,find the target cost, and design the product.
	D.	Analyze customer needs and wants, determine the desired profit,design the product, find the target cost.

2 points

Question 20

As the price increases, the quantity demanded willgenerally:

	A.	decrease.
	B.	increase and then decrease.
	C.	increase.
	D.	stay the same.

Question 23

Most of the manufacturing costs for a product are determined inthe:

	A.	design stage.
	B.	preproduction stage.
	C.	at maturity.
	D.	during production.

2 points

Question 24

Which of the following are relevant in deciding whether toaccept or reject a special order?

	A.	The impact the order will have on existing business.
	B.	The price that will be charged on the special order.
	C.	The incremental cost of filling the special order.
	D.	All of the above.

2 points

Question 25

Which of the following statements about prices and profit istrue?

	A.	Higher prices combine with lower demand to change the level ofprofits.
	B.	Higher prices always lead to lower demand and lower profits.
	C.	Higher prices will be offset by lower demand so profits willstay constant.
	D.	Higher prices always lead to higher profits.

Question 33

When preparing the operating section of a statement of cashflows using the indirect method, various adjustments are needed.Which of the following adjustments is incorrectly stated?

	A.	Add gains on sale of equipment.
	B.	Deduct any increases in inventories from net income.
	C.	Add to net income any increases in current liabilities.
	D.	Add to net income depreciation and amortization expense.

2 points

Question 34

Cash flows related to long-term liabilities and stockholders'equity items are classified as:

	A.	investing activities.
	B.	financing activities
	C.	operating activities.
	D.	non-cash activities.

ochrejackal936

You have been hired by a new firm selling electronic dog feeders. Your client has asked you to gather some data on the supply and demand for the feeder, which is given below, and address several questions regarding the supply and demand for these feeders.

Price/Feeder	Quantity Demanded	Quantity Supplied
$300	500	1800
270	600	1700
240	700	1600
210	800	1500
180	1000	1400
150	1100	1300
120	1200	1200
90	1300	1100
60	1400	1000
30	1500	900
10	1600	800

Your client has asked that you develop a report addressing the following questions so that you can present these findings to their Board of Directors:

Assume that the price floor is removed and a price ceiling is imposed at $90. What would happen in this market?

Now, assume that the price of feeders drops by 50%. How would this change impact the demand for feeders? Explain your answer and reconstruct the graph developed in question one to show this change.

Assume that incomes of the consumers in this market increases. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change.

Assume that the number of sellers decreases in this market. What would happen in this market? Explain your answer and reconstruct the graph developed in question one to show this change.

Explain the difference between a normal good and an inferior good. Would your answers to question 7 change depending on whether this good is a normal or inferior good? Why?

champagnewoodchuck110

Concepts: Variable cost Fixed cost Total cost Average total cost Marginal cost

Total revenue Average revenue Marginal revenue Demand Curve

1. Mark Sampson, President of Sampson Switch Company must consider the pricing and production for the Ultra Switch Model B, one of the companyâs top selling models. Switch production includes grinding and assembly of finished components. Marketing efforts consist primarily of print ads in trade publications. Last year the Model B produced a profit of $8,000.

Production facts. Sampson hires part time workers on an âas neededâ basis to do the grinding task. On average, a grinder is paid $8.00 per hour and s/he is expected to produce 200 switch plates per each 8-hour day. Switch assemblers, also part-time workers, are paid $50 per day and they are expected to assemble 5 switches per hour. Each switch consists of two switch plates and assorted other components (the cost of the âother componentsâ is $3.11 per switch).

Fixed Costs. Other costs include the year-long contract for the rental of the assembly line equipment ($1,000 per month).

Marketing facts. According to next yearâs plan, Mark expects to place 10 black and white print ads (each $500) and two special feature, color ads (each $2,500) for the Model B. Salaries for the marketing sales force that are allocated to the Model B will total $18,000 next year.

1a. What is the cost to produce one switch? (i.e., the unit variable cost)?

1b. What and how much are the items composing the total âfixedâ costs for next year?

1c. Graph the relationship between quantity produced (on the X-axis) and Total Cost (on the Y-axis).

1d. How much is the per-unit contribution if the product is priced at $15 a unit?

1e. What was the profit last year? What will be the change in profitability for the Model B if the product is priced at $15 per unit and 2,500 units are sold?

1f. What is the breakeven point if the product is priced at $15? How many must be sold next year in order to produce the same profit level as last year?

1g. Assume that Mark has $50,000 in equity invested in the Model B line. How many units must be sold in order to return 25% on his equity?

2. Answer qs 1a-g assuming that the selling price is reduced to $10 and demand increases by a factor of four.

3. After much investigation, the marketing research department tells Mark that they expect the âdemand curveâ to be. Compare the expected demand with the breakeven point for each price point. Knowing this information, what price should Mark charge in order to maximize profits on the Model B ?

selling price	units demanded	break even point
$15	2,500	...
$10	10,000	...
$9	13,000	....
$8	14,000	.....
$7	15,000	.....

4a. Create a graph showing âQuantity Demandedâ on the X-axis and âTotal Revenue $â on the Y-axis for each of the five priceâquantity demanded points listed in q 3 above.

4b. Create a graph that superimposes the Total Revenue for the five points of the âDemand Curveâ on the âBreakevenâ Chart of the Model B (note the $$ Y -axis will represent Total Revenue for the Demand curve and will represent Total Cost for the Breakeven chart). { 01.81 gif k&b785 g pees ]

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Business Administration - Accounting & Financial Planning ECN502 Lecture Notes - Lecture 3: Demand Curve, Normal Good

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