Economics Assignments

Week 5: Demand Elasticity Assignment


Background: The demand for some goods is inelastic, while the demand for other goods is elastic. There exists four major factors that affect the elasticity of demand.

• Number of Substitutes: the more substitutes a good has the easier it is for consumers to switch to another product if the price goes up
• Luxuries and addictions verses Necessities: the more necessary or addictive something is, the more inelastic it will be. Luxuries are also goods that people do not need to survive. Necessities are goods people feel necessary to survive.
• Percentage of Income Spent: the lower the proportion of income spent, the more inelastic the good will tend to be
• Time: As time passes, buyers have a greater opportunities to change quantity demanded in response to price change.
  

Task:

Part 1: For each of the following products, classify whether they are elastic or inelastic. Once you have classified the product, make an inference (conclusion) as to why the product was classified, and find evidence to support your conclusion.

Example: Potato Chips are elastic. The inference is based on chaning consumer preference and taste during the fall, based on cultural influences such as NFL Football on Sundays.

1. A box of matches
2. A luxury holiday
3. Heinz' baked beans
4. Computers - home users
5. Computers - business users
6. Cigarettes
7. Elastic bands
   

Task: Part 2
As we saw above, the strength of the brand will affect the elasticity. The stronger the brand, the more likely people are to buy it whatever the price. Draw a new demand curve on to show the effect of a major advertising campaign that strengthens the brand:

We can see this effect if we consider the price of a well-established consumer product - JEANS. To see the effect, try going to the AOL shopping webpage and follow the links to clothing and then to trousers. Find the price of a branded pair of jeans - say Levis, and then find the price of an equivalent pair of unbranded jeans (or perhaps a less well-known brand). Fill these prices in in the table below:

Brand/Make Price

Write a short explanation (referring to price elasticity where possible) of why these different brands of jeans differ in price.

posted by Paroune @ 6:12 AM 0 comments

Week Three Current Events:




Recently, the Ford Motor Company has experienced significant financial difficulty. Utilizing the following link http://www.cbsnews.com/stories/2006/09/15/ap/business/mainD8K512O00.shtml, and any other link you many find, address the issues of competition, outsourcing, and product decisions, and how these three issues contributed to the financial decline of Ford in recent years. You should construct a blog to properly answer the questions. Feel free to utilize pictures and links in your blog. Look to find other bloggers out there in the blogosphere that are discussing the same topic.

posted by Paroune @ 8:27 AM 0 comments