Dr. Seiji Steimetz ECON 101 Department of Economics California State University, Long BeachPage 1 of 10 ANSWERS FOR PROBLEM SET 3 LEARNINGOBJECTIVE LEARNING OBJECTIVE 3.1: Discuss the variables that influence demand. Review Questions 1.1A demand schedule is a table showing the relationship between the price of a product and the quantity of the product demanded. A demand curve is a curve that shows the relationship between the price of a product and the quantity of the product demanded. 1.2Ceteris paribusmeans “everything else equal” – that is, holding everything else constant when examining the relationship between two variables. 1.3 A “change in demand” refers to a shift in a demand curve, while a “change in the quantity demanded” refers to a movement along an unshifting demand curve. 1.4 The law of demand states that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase (and when the price of a product rises, the quantity demanded of the product will decrease). The main variables that will cause a demand curve to shift include: 1) changes in the prices of a related good – substitutes or complements, 2) changes in income, 3) changes in tastes, 4) changes in population or demographics, and 5) changes in expected future prices. An example of substitute goods is Coke and Pepsi, and an example of complementary goods is hot dogs and hot dog buns. An example of a normal good may be a name brand product, like Coca Cola. An example of an inferior good may be a store branded product, like Sam’s Choice Cola. An example of changes in tastes would be organic produce becoming more popular. An example of changes in population or demographics would be as the number of people over the age of 65 increases, demand for health care services will increase. An example of changes in expected future prices would be if the prices of hybrid vehicles are expected to come down in the future, today’s demand will decrease. Problems and Applications 1.5 a. substitutes b. complements c. complements d. probably unrelated 1.6 Downloads of television programs may be complements to downloads of music if the programs feature music the consumers wish to purchase. On the other hand, downloads of television programs are likely to be substitutes for downloads of movies. If Apple’s main goal is to increase downloads of music, they may choose to continue to offer downloads of television programs. If, on the other hand, they want to expand movie downloads, they may discontinue downloads of television programs.
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