Elasticity of Consumer Goods

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Honors Economics-Mr. Doebbler-Chapter 6 Study Guide

Chapter6: Consumer Behavior
p. 116 AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO: | 1 | Define and explain the relationship between total utility, marginal utility, and the law of diminishing marginal utility. | 2 | Describe how rational consumers maximize utility by comparing the marginal utility-to-price ratios of all the products they could possibly purchase. | 3 | Explain how a demand curve can be derived by observing the outcomes of price changes in the utility-maximization model. | 4 | Discuss how the utility-maximization model helps highlight the income and substitution effects of a price change. | 5 | Relate how behavioral economics and prospect theory shed light on many consumer behaviors. | 6 | (Appendix) Relate how the indifference curve model of consumer behavior derives demand curves from budget lines, indifference curves, and utility maximization. |

If you were to compare the shopping carts of almost any two consumers, you would observe striking differences. Why does Paula have potatoes, peaches, and Pepsi in her cart, while Sam has sugar, saltines, and 7-Up in his? Why didn't Paula also buy pasta and plums? Why didn't Sam have soup and spaghetti on his grocery list?
In this chapter, you will see how individual consumers allocate their incomes among the various goods and services available to them. Given a certain budget, how does a consumer decide which goods and services to buy? This chapter will develop a model to answer this question.
This chapter will also survey some of the recent insights about consumer behavior provided by the field of behavioral economics. These insights explain many of the less-rational and oftentimes quirky behaviors exhibited by consumers. Better yet, they also suggest concrete policies that individuals, companies, and governments can use to make…...

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...Subject: Elasticity Date: May 1, 2013 Business Brief Opening The article The Double Jeopardy of Sales Promotions assesses market influences that have steered US marketers to increase sales capacities and increase market share through the use of sales promotions (Jones, 1990). This concept was based on theme advertising. Many firms during this time lacked foresight of the expense and the earnings that were forgone while attempting to increase short-term cost. It has been argued that long term promotions reduces future sales by 'bringing forward' sales, and diminishing of the brand. They also promote competitive retaliation; and cheapen the image of the brand in the customer's eyes. Promotions can never improve a brand image or help the stability of the consumer (Jones, 1990). This process actually pushes the firm into a nasty cycle of promotion, commotion, and then demotion. According to the article by using mathematical techniques companies are able to maximize the efficiency of their marketing plan (Jones, 1990). Analysis Knowing Price Elasticity of Demand (PED) helps the company opt whether to raise or lower price, or whether to price differentiate. Price differentiate is when the company charges the consumer different prices for the same product (Jones, 1990). According to Boyes, a good with price elasticity stronger than negative one is said to be "elastic;" goods with price elasticity’s closer to zero are said to be "inelastic" (Boyes, 2008). Goods that......

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...1. You will need to thoroughly explain elasticity. You are expected to cover issues such as: a. What is it? Elasticity is how the demand or supply curve’s change to a change in the product. Whether it be price, quantity or another factor in the market. There are different elasticity calculations that can be used. Price elasticity of demand is the % change in quantity demanded / % change in price. Price elasticity of supply is the % change in quantity supplied / % change in price. Income elasticity of demand is the % change in demand of a product / % change in the consumer’s income. You are also able to calculate the change in price if a good that is related to your product using the cross-price elasticity of demand. This calculation is % change in demand of your product / % change in the price of a related good. b. Why is it used and why is it important? The elasticity calculations are used to see how your product’s demand reacts to changes in the market. It allows you to analyze your place in the market and lets you make business decisions for what price you want to charge for your product to how much of your product you want to be on the self. Understanding these calculations will help your business succeed. Scenario 2. The current price, paid by businesses, for your widget is $3.00. The current quantity you sell to various businesses is 150,000 per month. You decide to cut the price of your widget from $3.00 to $2.70. You expect that the quantity......

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...of the substitutes increases we would expect to see purchases increase for the other substitute. In the case of complements as the price rises in one we would expect to see the purchases decrease for both. A3. Income elasticity is the measure of the rate of response of quantity demand due to an increase or decrease in a consumer’s income. For most goods an increase in income creates an increase in demand for items that are considered an indulgence, like name brand clothes, new cars and electronic equipment. Equally the demand for these goods decreases if income decreases. These goods whose demands vary based on income are called superior or normal goods. Most products are considered normal goods, however there are exceptions. When incomes increase to a certain point the demand for used or less popular items like second hand clothes and used cars decreases. These goods that vary inversely with money income are called inferior goods. B. The coefficient for elasticity of demand measures the relationship between two variables. The formula used is percentage in change of quantity /percentage change in price. Q/P. if the numerator is less than the denominator then the coefficient would be 1 making it elastic. The coefficient for cross price elasticity measures the percent of change in quantity of demand when a price change occurs in either substitutes or compliments. In the case of a substitute when the price goes up let’s say in broccoli. The demand for green......

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...Elasticity Presented to:- Dr. Hamde Abd-el-Azem Sadat academy for management sciences Done by:- Ahmed gamal Ezz el-Din G: group 4 S: Managerial economics The degree to which a demand or supply curve reacts to a change in price is the curve's elasticity. Elasticity varies among products because some products may be more essential to the consumer. Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases. Conversely, a price increase of a good or service that is considered less of a necessity will deter more consumers because the opportunity cost of buying the product will become too high. A good or service is considered to be highly elastic if a slight change in price leads to a sharp change in the quantity demanded or supplied. Usually these kinds of products are readily available in the market and a person may not necessarily need them in his or her daily life. On the other hand, an inelastic good or service is one in which changes in price witness only modest changes in the quantity demanded or supplied, if any at all. These goods tend to be things that are more of a necessity to the consumer in his or her daily life. To determine the elasticity of the supply or demand curves, we can use this......

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