In Treatment 1, the buyer’s consumption decision is expected to be influenced by preference only since the two goods, Coke and Pepsi, sell at the same price. In Treatment 2, more buyers are likely to turn to purchasing Coke, as the price of Pepsi will have gone up, while that of the former will have remained constant. In Treatment 3, more buyers are likely to turn to purchasing Pepsi, as its price will have gone down, while the cost of purchasing a Coke will have remained constant, but relatively higher than that of its substitute product. In conclusion, changes in price of a particular good affect the consumption of its substitute. The study is based on the following research question: Does changes in the price of a particular good affect the consumption of its substitutes? The hypothesis of the study constitutes the researcher’s expectations as regards what the results of the study will be. The hypothesis is as follows: If the price of a particular good goes up, the consumption of its substitute also increases, and if the price goes down, the utilization of its alternate product reduces as well. The experiment will be conducted in the lab and will involve the use of computers to deign it. In the current experiment, the use of a computer is preferred to speed up the processes relating to the experiment to complete it in the shortest time possible. The use of computers will also be suitable as the experiment will involve multiple variables and treatments. The use of computers will also facilitate the design and issuance of the experimental instructions. The experiment will require the participants (subjects) to be grouped together to make the comparison of the results easier. Although the subjects will be grouped together, each... ... middle of paper ... ...increased price of $6 for each unit, while the second one will have 60 units of Coke, going at a constant price of $4. Each buyer will have the same $8 to make a consumption of their choice. In Treatment 3, Seller 1 will stock 60 units, selling each at a reduced price of $2, while Seller 2 will retain the same quantity of Coke and sell it at the same price as in the case with Treatment 2. In the three scenarios, the buyer’s consumption surplus is regarded as the difference between the purchase value and the paid price. The effect of substitution in the market explains the law of demand and the negative gradient that occurs at some point along the curve. If the price goes up, then the substitutes become cheap to purchase, and if the former goes down, then the latter becomes more expensive to buy. This study seeks to establish the effect of substitution in the market.
The experiment that was performed consisted of prices being manipulated on a set of 72 grocery products over a six week period. The products were classified as stock-up goods or non stock-up goods.
If the price for one good increases, consumers will turn to a different good to satisfy their needs (Substitute Goods, n.d.), thereby decreasing demand for the original good and increasing the demand for the substitute good.
We the consumer would rather pay less for any product that is needed or want. Ultimately we are the reason for high prices as well as low prices. Prices of products do not always stay the same and more popular products have higher prices than less popular products. These fluctuations, high prices and low prices are from the idea of supply and demand. Supply and demand defines the effect that the availability of a particular product and the desire or demand for that product has on price. Generally, if there is a low supply and a high demand, the price will be high (Investopedia). To understand the idea of supply and demand, the understanding of supply and the understanding of demand must be defined. The Law of Supply states that at higher prices, producers are willing to offer more products for sale than at lower prices, also that the supply increases as prices increase and decreases as prices decrease (Curriculum Link). The Law of Demand states people will buy more of a product at a lower price than at a higher price, if nothing changes, at a lower price, more people can afford to buy more goods and more of an item more frequently, than they can at a higher price and that at lower prices, people tend to buy some goods as a substitute for others more expensive (Curriculum Link). In todays economics these ideas are seen frequently in everyday life. The laws of supply and demand are seen in many ways in the company Apple Inc. Each year Apple Inc unveils a long awaited mobile operating system and IPhone. We can also see many aspects of the law of supply and demand in Nike Inc’s Jordan Brand. Jordan Brand has released a number of...
Going into details of the article, I realized that the necessary information needed to evaluate the experimental procedures were not included. However, when conducting an experiment, the independent and dependent variable are to be studied before giving a final conclusion.
The quantity of a commodity demanded depends on the price of the commodity, the prices of all other commodities, the incomes of the consumers as well as the consumer’s taste. The quantity of a commodity supplied depends on the price obtainable for the commodity as well the price obtainable for substitute goods, the techniques of production, the cost of labor and other factors of production. It is supply and demand that causes a market to reach equilibrium. If buyers wish to purchase more of a commodity than that of which is available at a given price, then the price will to tend to rise. If they wish to purchase less of a commodity than that of which is available, then the price will tend to drop. Consequently, the price will reach equilibrium at which the quantity demanded is just equal to the quantity supplied.
Economic events are largely governed by the interaction of supply and demand. The law of supply states that with ‘all else being equal’ (ceteris paribus), as market price of a good or service increases/decreases so will an increase/decrease in quantity supplied. In turn, the law of demand states as market price of a good or service increases/decreases ceteris paribus, the quantity demanded will increase/decrease accordingly. The Australian avocado industry is an indicative example of microeconomics - the study of individual consumer or business decision making and spending behaviour in relation to the allocation of a limited resource and the correlation of supply and demand in determining
n hypothesis of the experiment is that the group containing four members will perform better than the group containing two members. This is the foundation from which we have conducted our experiment.
Throughout the course of an average day, I drink six cans of sparkling water. My choice in brand is dominated by my ability to buy more of a cheaper brand, thus maximizing utility. There are three grocery stores within walking distance of campus, GoGrocer, CVS Pharmacy, and Aldi. GoGrocer stocks 12-packs of LaCroix sparkling water for $4.99. CVS stocks a generic brand (Gold Emblem) at $0.99 per liter. Aldi sells PurAqua sparkling water for $2.99 for 12 cans. Given that one can has 12 ounces of sparkling water and that a liter has 33.814 ounces, the per ounce cost of each brand would be $0.0347 for LaCroix at GoGrocer, $0.0293 at CVS, and $0.0208 at Aldi. This shows that the most economically efficient sparkling water brand to buy is PurAqua. Therefore, I buy the Aldi brand of sparkling water to maximize my
The demand curve follows a distinct line unless some other factor causes the line to shift. The demand curve operates under the principle if the demand goes up the price goes down, and likewise if the demand goes down the price goes up as long as all other things are constant. A shift in the demand curve indicates something is not constant. In the simulation, a company named Lintech expanded its operations to Atlantis. The expansion increased the population of Atlantis changes the demand for apartments, but does not change the supply of apartments in the area. The sudden shortage of apartments created a demand curve shift. The shift permits Goodlife to offer a higher price for their 2 bedroom apartments, and still be able to fill the same number of units. By increasing the price, Goodlife brought the price and quantity available back into equilibrium (University of Phoenix, 2014).
Price Elasticity of Demand for Cigarettes (a) Studies indicate that the price elasticity of demand for
The diagram shows the income and substitution effect of a consumer for good 1 and good 2, that is the substitution effect for bananas and mangoes .Initially, the consumer is faced with a situation where they choose to consume a combination of both goods 1 and 2, forming a point of equilibrium at point A. at this point, the old budget line of the consumer is tangent to the indifference curve that is located at the outer side (the higher indifference curve). Here, the consumer makes a choice of the amount of good 1 and the amount of good 2 to consume so as to attain the highest level of utility. In this case, the consumer makes a choice to consume 11 units of the good 1 and 8 units of the good 2, forming the equilibrium level at point A. A price change occurs for the good 1,say the price changes from 50 to 70. This is a price increase of 20. following the increase in the price for bananas, good 1, the good becomes more expensive. This brings about a change in the consumption of good 1 by the consumer. Thus the consumption level of the consumer moves along to the point E. this becomes the new equilibrium level following the price increase of 20. At the point E, the new budget line of the consumer is tangent to the indifference curve that is on the lower side in the diagram. The increase of the price of bananas leads to a decline in the amount that is consumed. Hence, the consumption level falls from 11 units to 4 units. On
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
In economics, one particular arresting feature is the price effect on demand and supply. With the aim of making commodity and service market balance, demand and supply should tend to be balanced. That is economic equilibrium. Market equilibrium is the situation where quantity supplied and quantity demanded of a specific commodity are equal at the certain price level. As the diagram shows below, at price1 quantity supplied is more than quantity demanded, a surplus occurs. That means producers cannot sell all the products because of the small demand of market. Then price will start to fall. At price 2, quantity demanded is more than quantity supplied, a shortage occurs. In this situation, more products will be made because producers have pursuit
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.
For example, the chart would reflect the correlation between demand and the products price, or in the case of supply, the supplied products and its price. Moreover, supply, demand, and price, along with supply elasticity can be graphed and analyzed. This particular method of tracking and analyzing data is essential in identifying the markets status and determining the best plausible route (Skousen, 2014). By studying supply and demand, one is also able to identify whether an excess or a shortage in demand or supply is occurring, or whether an equilibrium has been attained. Consequently, it is evident that supply and demand take part in the market economy and greatly influence and impact the price value. Furthermore, to express how supply and demand impacts the price value, the price value of airline tickets will be utilized as an