ECON 1000 Lecture Notes - Lecture 2: Ceteris Paribus, Demand Curve, Substitute Good

6 views2 pages

byzantiumcat166

17 Jul 2019

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

castroariane563 and 39059 others unlocked

ECON 1000 Full Course Notes

Verified Note

10 documents

Document Summary

Demand is created by the needs of consumers, and the nature of demand owes much to the underpinning worth that consumers perceive the good or service to have. We all need necessities, such as basic foodstuffs, but other products may be highly sought after by some and regarded as worthless by others. The level of demand for a good or service is determined by several factors, including: the price of the good or service: prices of other goods and services, especially substitutes and complements income tastes and preferences, expectations. In orthodox economic analysis, these determinants are analysed by testing the quantity demanded against one of these variables, holding all others to be constant (or ceteris paribus). The most common way of analysing demand is to consider the relationship between quantity demanded and price. Assuming that people behave rationally, and that other determinants of demand are constant, the quantity demanded has an inverse relationship with price.

Related Questions

Discussion #1

The law of demand states that a fall in the price of a good raises the quantity demanded, and the increase in price leads to a decrease in quantity demanded. The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price, and the percentage change in quantity demanded is greater than the percentage change in price. Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price, which indicates that the percentage in price is greater than the percentage in quantity demanded.

However, the extent of responsiveness of quantity demanded to a change in price depends on the nature of a particular good or service in the market. The price elasticity of demand partly depends on the availability of close substitutes. When a large number of substitutes are available, consumers respond to a higher price of a good by buying more of the substitute goods and less of the relatively more expensive good. In addition, goods or services that are considered necessities tend to have less elastic (more inelastic) demand, whereas goods or services that are considered luxuries have more elastic (less inelastic) demands.

Explain why the demand for the good or service provided by the organization you work for is elastic or inelastic. How does this influence pricing decisions?
Provide examples on how the availability of close substitutes affects price elasticity of demand.
Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

Please answer ALL bulletins and place the answers under the correct bulletin.

1. Managerial economics can best be defined as the:

Select one:

a. macroeconomics and microeconomics for managers.

b. analysis of the labor market through the behavior of workers and managers.

c. analysis of major management decisions using economic tools.

d. study of economic incentives on consumer behavior and demand.

e. study of the strategic interaction between firms in a market.

2. The price elasticity of demand is defined as the ratio of the _____ other factors held constant.

Select one:

a. change in the price of a good to the change in the total revenue

b. percentage change in quantity demanded to the percentage change in the price of a competitorâs good

c. percentage change in quantity demanded to the percentage change in price

d. percentage change in the price of an input to the percentage change in the price of the good

e. percentage change in price of the good to the percentage change in the consumersâ income

3. According to the law of demand, if a firm reduces the price of its good:

Select one:

a. the quantity of goods produced and sold by the firm will decline.

b. competing firms will reduce prices.

c. some consumers will exit the market.

d. consumers in the market will demand more units of the good.

e. consumers will demand fewer units than before the price cut.

4. Other factors constant, a change in _____ will cause a shift in a firm's demand curve.

Select one:

a. the quantity of the good offered for sale

b. the price of the good or service

c. the wages paid to labor employed

d. the general income level of consumers

e. the technology used in the production of the good or service

apricotleopard382

1. Anna owns the Sweet Alps Chocolate store. She charges $10 per pound for her hand made chocolate. You, the economist, have calculated the elasticity of demand for chocolate in her town to be 2.5. If she wants to increase her total revenue, what advice will you give her and why? Explain your answer.

2. If the cross elasticity of demand between peanut butter and milk is -1.11, then are peanut butter and milk substitutes or complements? Explain your answer.

3. A 10 percent increase in income brings about a 15 percent decrease in the demand for a good. What is the income elasticity of demand and is the good a normal good or an inferior good? Explain your answer.

4. If the price of a good increases by 8% and the quantity demanded decreases by 12%, what is the price elasticity of demand? Is it elastic, inelastic or unitary elastic?

5. Discount stores sell relatively elastic goods. Ceteris paribus, explain why selling at a relatively low price is profitable for them?

ECON 1000 Lecture Notes - Lecture 2: Ceteris Paribus, Demand Curve, Substitute Good

ECON 1000 Full Course Notes

Document Summary

Get access

Related Documents

ECON 1000 Lecture Notes - Lecture 3: Demand Curve, Latte, Marginal Cost

ECON 1000 Lecture Notes - Lecture 15: Inferior Good, Marginal Cost, Demand Curve

ECON 1000 Lecture Notes - Lecture 1: Economic Equilibrium, Demand Curve, Marginal Revenue

Related Questions