Managerial Economics & Business Strategy Chapter 4

            However, if the school allows a competing student the right to sell ice cream on school property, it could change the price of ice cream. The price of ice cream is lowered due to technology.  The invention of better ice cream machines or an idea to make better use of counter space can lower a firm’s cost and raise the quantity of ice cream it supplies.  Prices could also be increased due to input prices. Less ice cream is supplied when workers need be paid more, therefore ice cream machines cost more, or even ingredients like

Law of Demand: Downward slope, and inverse relation of price and quantity demand. When price of oranges goes up, the quantity demand will decrease, because of higher price, and substitutes.

A. The concept of elasticity of demand has played a major role in managerial decision-making. It has greatly helped managers in consideration of whether lowering a price will lead to an increase in demand of a certain product, and if so, to what extent and whether profits would increase as a result of doing so. In this case the concept of demand becomes advantageous in that:

When A is MRS > Px /Py and when B is MRS < Px /Py. When it reaches A(B) the consumer is will probably be willing drop Y(X) in order to get more X(Y). The amount to drop is at the market.

A. decreased, causing the price of cigarette rolling machines to fall and the quantity of machines purchased to fall

viii) This may be determinate of the given situation: For example, when gas prices skyrocketed people started looking for alternatives to circumvent the elevate prices. In states like Texas, Utah and Oklahoma, people started to invest in vehicles that used natural gas as an alternative fuel. Because of the cheaper price of natural gas, the demand for these types of vehicles went up, driving up prices for new and used vehicles. Once the price of a gallon of gas under a certain price,

Changes in price can affect buyers' purchasing decisions; this effect is called the income effect.

So when demand increases and a supply doesn’t change, a shift in price will happen. This shift will move to the right causing a new Equilibrium.

It is basic economic principle that states that when there is an oversupply of a good or service, prices fall. When there is a high demand, prices tend to rise.

According to the law of demand, there is an inverse relationship between the quantity demanded of a particular good and its price. The degree to

For instance, if someone's income grows, then his demand for goods will increase, shifting his demand curve to the right. This will lead to a higher quantity being consumed at a higher price, ceteris paribus. Conversely, there can be a negative effect that shifts the supply curve to the left where a lower quantity is consumed at a lower price, ceteris paribus. This can occur when the price of substitutes falls or consumers begin to lose their taste for the product.

Consumers can adjust to price changes by purchasing less of an item whose price has risen and more of a cheaper substitute.

In addition to the law of demand, the law of supply also serves as the second major resource in studying economics. The law of supply states that with other factors remaining constant, as the price rises, the quantity of the product supplied also rises. Conversely, as the price falls, quantity of the product supplied also falls (Colander, 2006, p 97). The law of supply is refers to how producers can effectively substitute the production of one product for another (Colander, 2006, p.

a. Lack of family income - A discussion of the effects of inadequate income implies the existence of a standard of adequacy.There is, however, no single accepted standard of adequate family income, although on certain cut- off points there is little or no argument. Some are heavily debted

This type of relationship can be explained by the law of demand which states that as price of a good increase or decreases, the quality demanded of that good falls or rises all other things being equal.