Microeconomics for MBAs 28

Microeconomics for MBAs 28. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 17 Changes in Demand The determinants of the elasticity of demand are fewer and easier to identify than the determinants of demand itself. As we saw in Chapter 3 the demand for almost all goods is affected in one way or another by 1 consumer incomes 2 the prices of other goods 3 the number of consumers 4 expectations concerning future prices and incomes and 5 that catchall variable consumer tastes and preferences. Additional variables apply in differing degrees to different goods. The amount of ice cream and the number of golf balls bought both depend on the weather very few golf balls are sold at the North Pole . The number of cribs demanded depends on the birthrate. Together all these variables determine the position of the demand curve. If any variable changes so will the position of the demand curve. We saw in Chapter 3 that if consumer preference for a product say blue jeans increases the change will be reflected in an outward movement of the demand curve see Figure . That is what happened during the late 1960s when college students tastes changed and wearing faded blue jeans became chic. By definition such a change in taste means that consumers are willing to buy more of the good at the going market price. If the price is P1 the quantity demanded will increase from Q2 to Q3. A change in tastes can also mean that people are willing to buy more jeans at each and every price. At P2 they are now willing to buy Q2 instead of Q1 blue jeans. We can infer from this pattern that consumers are willing to pay a higher price for any given quantity. In Figure the increase in demand means that consumers are willing to pay as much as P2 for Q2 pairs of jeans whereas formerly they would pay only P1. If consumers tastes change in the opposite direction the demand curve moves downward to the left as in Figure a quantity demanded at a given price decreases. Whether demand increases or decreases

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