Hey there -
Just some questions to get you thinking about S & D, and some links to more animated gif files.
1) Some people will pay a higher price for brand-name goods. For example, some people buy Rolls Royces and Rolex watches to impress others. Does knowingly paying higher prices for certain items just to be a “snob” violate the law of demand?
2) Predict what will be the direction of change for either supply or demand (and in what market) in the following situations:
a. Several new companies enter the home computer industry.
b. Consumers suddenly decide that large cars are unfashionable.
c. The US Surgeon General issues a report that tomatoes prevent colds.
d. Frost threatens to damage the coffee crop, and consumers expect the price to rise sharply in the future.
e. The price of tea falls. What is the effect on the coffee market?
f. The price of sugar rises. What is the effect on the coffee market?
g. Tobacco lobbyists convince Congress to remove the tax paid by sellers on each carton of cigarettes.
h. A new type of robot is invented that will pick peaches.
i. Nintendo anticipates that the future price of games will fall much lower than the current price.
3) When Exxon moved away from its location at the northeast corner of Wright and Green Streets, Shell, operating on the southwest corner of Wright and Green, promptly raised its prices. Is this coincidence? Explain.
4) Why are we relatively insensitive to price changes affecting low-priced goods such as bubble gum?
http://www.reffonomics.com/determinatesofsupply.html (determinants of supply)
http://www.reffonomics.com/supplydemandindifferent.html (shifting curves)
Have a nice weekend - sorry I freaked some of you out about the application questions - no worries, we'll talk about them next week. Enjoy your relatively homework-free (from me) weekend! :)
Ohh - almost forgot - if you feel I missed comments for the blog grading, zip me an email. I have a system now, and it's going to work great, but it was a little confusing setting it up, so I may have missed some people on accident. Remember - your comments should be meaningful and amazing! ha!
KM
23 comments:
THis is about question number 4. People are incensitive about price changes on the little things such as gum probably because they are so cheap to begin with people normally don't look at the price at all but just through the gum in with the rest of the materials that they buy when they are shopping at a given grocery store or other type of store. Gum and other low cost things seem to be things we just through in with the materials we need so the price doesn't really hurt us at all whatever it is going to be.
Question 1: One would assume that the purchasing of expensive goods would violate the law of demand, but I think the concept could work both ways. For example, there are those who buy expensive clothing merely to impress others, and there are those who buy thrift store clothing for extremely low prices. In both cases, there are people willing to pay both extremely high and low prices for oftentimes the same item. Most consumers fall somewhere in the middle between these two extremes, and therefore do not overall effect the demand curve to a great extent.
1) No, snobbiness doesn’t violate the law of demand. There are still more people driving Geo Metros than Rolls Royce’s so overall demand decreases as the price increases. But people with unlimited amounts of money are exceptions to most rules, including the law of demand. If price doesn’t affect them, then the only determinate of demand that they follow is their personal tastes.
3) No, the price increase isn't a coincidence. When there were two gas stations on the same street corner that corner had a competitive market in gasoline and buyers could easily see what the competitor’s price was. Now that there is only one gas station, Shell has a monopoly on that corner. There’s no longer an alternative for buyers in that area so they will be willing to pay a higher price.
Hey.. so this has nothing to do with S and D info.. but I just checked my blog and it says that anybody can view it, so it's not on private, but then when I hit the link from your page for my blog, it says that there is no blog there...... so perhaps it isn't linked right or whatever you would say about that kind of thing. My blog is at apecon07.blogspot.com try getting to the blog by actually punching in the url instead of the link, maybe that will make a difference. Otherwise I will show you my blog on Monday and we can try and sort it all out...
Hello,
Concerning the 1st question:
I think that the law of demand is not violated in this sitauation. Accualy it apllies here as in any other situation. Goods like RRs or Rolexes are luxury goods that price is also driven by economic laws. If the quantity demanded doubled the price would go up to. The reason why people buy something (wether to show off or to survive) doesn't influence the demand. It matters though when we talk about the demand elasticity.
4) low priced goods are small percentage of our income so the demand is insignifficantly affected.
#1: No buying extremly expensive things does not violate the law of demand. There are still fewer people who can afford a Rolls Royce, so the demand is still less. As price increases demand increases, which follows our distribution of wealth, fewer rich than middle class citizens.
I have a general question for anybody...
I recently bought John Mayer concert tickets, I only bought two, but it was pretty expensive. I was talking to my Dad and he thinks that since the concert is on Valentine's Day they hiked up the price. Now I'm not so sure about that, but if what my father thinks is true, what would the price change be called, in economic terms?
A response to question 4:
This really made me think because when it comes to gas and the price goes up 1 cent, we cringe, but if gum goes from $.60 to $.65 we don't even notice. I think it has something to do with the fact that low priced goods often come in many different varities, and if, let's say sugar, is too expensive for us, there are probably some generic types of sugar we can find that will be cheaper. I think it is bit of psychological thing, where we know low priced goods are not rare, and other sorts can be found everywhere, so we don't worry oursleves.
Question 2e.): When the price of tea falls, the quantity demand of coffee will decrease because the quantity of tea demanded increases as the price decreases. Therefore people will choose the substitute tea instead of coffee.
2.b) Consumers suddenly decide that large cars are unfashionable.
if consumers suddenly decided that large cars were unfashionable there would be a much higher demand for smaller cars, which would make the price of smaller vehicles increase. more people want to buy them so they would be more willing to pay a higher price. and if the demand for larger cars drops then the price of them is also more likely to drop.
Whoa, I think you read my mind. I was thinking about your question (1) as I looked over my demand notes.
Then again, it makes sense. People pay for goods, services; things they need. People also pay for things they want... people pay for the little eagle or the moose embroidered to their shirt, just like anything else.
1) Yes, the demand will increase because rich people are looking to buy more snob items to impress. In turn, the curves will seek and equilibirum to supply will increase over time.
So I thought I posted to this last night... but I had a feeling since my computer was acting weird that it didnt work. So i'll try again...
I looked at the situation in question 2 with the invention of a robot that could pick peaches. And of course people with peach farms are going to buy them. As more and more farmers buy them, the price is going to drop and more are going to to be produced and so on. But then I started thinking about the people who used to pick the peaches... now they no longer have a job. Yea technology is good, but is is it possible to have a point when there is too much technology??
4) Sorry I did these 2 posts now, but my internet has been done the last couple of days.
Things like bubble gum cost so little as it is that a $.05 raise in the price is not very noticeable. We tend to be more in tune to large price changes of $3+. This is just an attempt to make more money as demand will probably not decrease when the price rises such a small amount.
alright i have a question.. i was discussing this with a fellow classmate earlier and i was just wondering if its possible to live without having economics involved. we were saying even if you live out in the woods in a secluded area in a cardboard box you can't get away from economics (assuming you aren't starving yourself) because if you go looking for berries or something, well there is still supply and demand involved.. so is it possible?
This is about question number four. I think that we are very insensitive to the little price jumps on bubble gum becasue no one can remember from time to time what they paid. Also, if I use change to buy things, I think that it was reallly cheap, so if I have enough change to buy something, then it can't be too bad. But we get all hyped up about gas becasue we hear about it so much. Besides, since it is such a small price in the first place that it doesn't really hurt us. However, when we buy big items, like computers, and the price jumps, like, $20, we barely even notice because the price was so high to begin with, so it works both ways.
2a.) Increase in supply for computers.
b. Increase in demadn for small cars, decrease in demadn for large cars.
c. Increase in demand for tomatoes
d. Increase in demand for coffee right now.
e. Decrease in quantity demanded for coffee right now.
f. I don't think there woudl really be a difference. If people are really addicted to coffee they will drink it without sugar. Or there might be an increase in quantity demanded for like, splenda or something like that.
g. Increase in quantity supplied of tobacco products (they are cheaper now??) Otherwise, I don't think more people are going top pick the the habit up, so no change.
h. Increase in quanity supplied for peaches.
i. No change right now, a future increase in teh quantity demanded of games.
OK, let's see if I can do these without my notes...
2) Predict what will be the direction of change for either supply or demand (and in what market) in the following situations:
a. Several new companies enter the home computer industry.
This is a change in the number of producers (thus, an increase in supply)
b. Consumers suddenly decide that large cars are unfashionable.
This is a change in consumer tastes (thus, a decrease in demand)
c. The US Surgeon General issues a report that tomatoes prevent colds.
This is an increase in demand. (consumer tastes??)
d. Frost threatens to damage the coffee crop, and consumers expect the price to rise sharply in the future.
This is an increase in demand (consumer expectations)
e. The price of tea falls. What is the effect on the coffee market?
The demand for coffee increases (substitute good)
f. The price of sugar rises. What is the effect on the coffee market?
The demand for coffee decreases (complementary goods)
g. Tobacco lobbyists convince Congress to remove the tax paid by sellers on each carton of cigarettes.
Supply (government policies)
h. A new type of robot is invented that will pick peaches.
increase in supply (technology)
i. Nintendo anticipates that the future price of games will fall much lower than the current price.
demand decrease (consumer expectations)
For Gina: 2e - your answer was:
"Question 2e.): When the price of tea falls, the quantity demand of coffee will decrease because the quantity of tea demanded increases as the price decreases. Therefore people will choose the substitute tea instead of coffee. "
If the price of tea falls, it's a substitute for coffee, so the DEMAND (not QD) of coffee will increase. It's the QD of tea that will change because of the change in price. :)
Ellen - 2b, yes. :)
Kaitlin -
To your question:
" looked at the situation in question 2 with the invention of a robot that could pick peaches. And of course people with peach farms are going to buy them. As more and more farmers buy them, the price is going to drop and more are going to to be produced and so on. But then I started thinking about the people who used to pick the peaches... now they no longer have a job. Yea technology is good, but is is it possible to have a point when there is too much technology?? "
An economist will answer: No. If you find something that can be done faster & better through technology, that is more efficient, and efficiency is always the way to go. Those people who lose jobs can/will be retrained/re-educated and find jobs elsewhere that would help production & efficiency, perhaps in other markets.
In real life, of course, that's different. Those people have to go through retraining, find new jobs, stress of losing a job, etc etc.
KM
Keri - good job on your choices with #2! A few corrections -
Same as with Gina - the difference between QD and D for 2e.
2f - complements, so D down.
g - excellent - that's a toughie. :)
h - change in supply of peaches, not QS (technology, easier to get peaches, etc)
i - could see a decrease now, if you know the price will go down in the future, you'd buy less now.
Good job!
Beth - all correct! Excellent!
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