Chapter 2 Illustration

Chapter 2 Illustration - Illustration 2.1 Effects of...

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Illustration 2.1 Effects of Changes in Determinants of Demand on Price and Sales Much of the discussion of demand in this chapter concerns the effects of changes in the determinants of demand, or demand-shifting variables, on demand functions, and the consequent effects of these shifts on prices and sales. Some actual examples of these effects, all of which were reported in The Wall Street Journal, should illustrate and reinforce this theoretical analysis. These examples illustrate the consequences of changes in income for normal goods, changes in the price of a related good (both substitutes and complements), changes in taste, and changes in price expectations. The examples also provide some insight into how managers can adjust to such changes in a way that benefits the firm. Changes in Income Ross Perot warned that free trade with Mexico would create a “giant sucking sound” as jobs moved from the United States to Mexico. Perot’s prediction about job loss to Mexico proved to be incorrect, but in 1996 the WSJ reported that Perot may still be hearing a “giant sucking sound” but it may be the sound of goods, not jobs, being sucked from the United States into Mexico. Mexico, along with the rest of the so-called emerging markets worldwide, is booming. Rapidly increasing real income in Latin America is creating a boom in the demand for normal goods produced in the United States. Managers of U.S. corporations selling normal goods (e.g., earthmovers, cellular
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This note was uploaded on 10/02/2011 for the course MGE 429041 taught by Professor Isseyteh during the Spring '10 term at SUNY Buffalo.

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Chapter 2 Illustration - Illustration 2.1 Effects of...

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