...to exchange money for goods or services. The price refers to how supply and demand interacts to set the market price for the selling of goods. The concepts of the market equilibrating process will describe and analyze how its factors determine to purchase a Chevy Volt electric automobile during this economic crisis. Market Equilibrium Process Market equilibrium is a process that allows the number of goods by suppliers to equal the number of goods of demand. Once this happens the market at that moment is in a state of equilibrium. The market equilibrium price, p, and equilibrium quantity, q, are determined by where the demand curve of the buyers, D, crosses the supply curve of the sellers, S. The horizontal line of a graph below shows each unit from zero to quantity (q) the demand curve is above the supply curve, meaning that the consumer or customer is willing to pay more to buy those units than they cost to produce. The vertical line displays the prices on the graph. If the price is below the equilibrium the demand would be greater than the supply and there is a shortage. If prices are above the equilibrium the supply would be greater than demand and there is a surplus of supplies (McConnell, 2009). Laws of Demand and Determinants The law of demand is when the price is higher than the consumer is willing to pay for the product resulting in a lower demand. There are five ceteris paribus demand determinants that affect consumers. They are: • Buyers income...
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...of a good or service is an inverse function of its price, holding everything else constant. So, what does this mean? There are two important things to take away from this definition. First, this means that when the price of a good goes up, people want to buy less of it. This part is pretty intuitive, and gives demand curves their general shape as shown below. Here, we see that when the price of the good (P, on the vertical axis) is high, the quantity demanded of the good (Q, on the horizontal axis) is low, and vice versa. You’ll also notice that while we’ve been calling this a demand “curve”, the picture is clearly a straight line. For simplicity, we’ll be using straight line demand curves at many times throughout the class. This assumption makes the math simpler (especially when we get to monopolies) without sacrificing too much generality. As you’ll see below, we’ll often make the same assumption about supply curves. The second important part of the Law of Demand is that last little phrase, “holding everything else constant”. Economists call “everything else” which needs to be held constant the Determinants of Demand. These determinants are a list of things which affect how much of the good in question consumers want to buy at a given price, which is exactly what the demand curve represents. Thus, changes in the determinants of demand change the demand curve. Determinants of Demand 1) Price of the good itself 2) Price of other goods and services 3) Income / Wealth 4) Consumer...
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...given set of economic conditions. Determinants of Demand Demand is determined by prices of other goods, income, expectations of price changes, consumer tastes and preferences , advertising expenditures and so on. 3 Basis for Demand • Direct Demand – Demand for personal consumption products. – The demand for products that directly satisfy consumer desires. – The value or worth of a g&s, its utility, is the prime determinant. 4 Basis for Demand • Derived Demand – Demand for all inputs is derived demand input demand. – Determined by the profitability of using various inputs to produce output. 5 Basis for Demand • Industry Demand Versus Firm Demand – Industry demand is subject to general economic conditions. – Firm demand is determined by economic conditions and competition. 6 Market Demand function 7 Demand Curve Demand Curve Determination –Demand curve shows price and quantity relation holding everything else constant. Change in Quantity Demanded –Quantity demanded falls if price rises. –Quantity demanded rises if price falls. Role of Non-Price Variables –Change in non-price variables will define a new demand curve. 8 Relation between the demand curve and demand function Movements Along Demand Curve – A rise in price causes upward movement along a given demand curve. – A price decline causes downward movement along a given demand curve. Demand Curve Shifts – Demand increases if a non-price...
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...2012 mr_marshalls@live.com Exercise 1: Microeconomics Issues: Question # 1 There are two reasons gas prices must go up. The first is to get people into coal-powered cars. Coal-powered cars can only be driven around 40 miles before they must be plugged back into the grid for more coal power. If everyone moves to coal-powered cars, the drivers will be forced to live closer to cities (Erickson, 2011). According to my current reading, when you look at the term product differentiation in buying your gas, this term gives competitors the edge to host the cheapest gas (Chapter 10:253). In the current week, the Shell gas pump went from $3.65 to $3.57 per gallon and the week before that the gas price during week 1 was $3.47 expecting to rise to $4 per gallon in Lexington, KY. During my travel to Indiana the gas prices average $3.99 per gallon. In using the midpoints of price and quantity to compute the relevant percentage changes essentially gives us the average elasticity between point (a) and point (b) (Stone, Gerald. “Core Economics” Worth Publishers, 07/2011. p. 118). My equation below may show just exactly how these price may increase or decrease based on the elasticity formula: Eᵈ = 200 / 400 ÷ 3.65 – 3.57 / (3.57 + 3.65) / 2 = 200 / 400 ÷ (- 0.08 / 5.3950) = .5 ÷ -0.0148 = [-33.72] = 33.72 I think for the most part of our gas prices has increase due to determinants of our increase in supply due to our disaster issues that has pushed for aide from the government and local...
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...deficiency. The data looks very clear; however, by understanding the components and each of the economic roles that is included in reaching equilibrium will support in the understanding of the developments. Factors of market equilibrium take in elements of the law of demand and determinants of the law of supply, as well as, proficient markets theory and market surplus or shortage. The wheel business repeatedly experience variations in demand, price, and supply. The proceeding debates the essentials of the results of a tire company with original equipment (OE) and replacement equipment (RE) wheel producers and adjustments they make to reach market equilibrium. Supply and Demand The law of demand describes the reverse or adverse association concerning price and quantity thru expressing when price drops, demand amounts increase and when price climbs, demand quantities decrease (McConnell, Brue, & Flynn, 2009). The demand curve slopes downward to the right as prices fall and demand increases. Between the years of 2008 and 2009, a great economic misfortune produced modifications to customer’s earnings initiating fewer customers to purchase new cars. The shift in the demand for newly manufactured cars had an undesirable consequence to the need for tires from the original equipment manufacturers (OEMs). At the same time, the pricing to OEMs began to decrease as the demand fell. The element of decreases in demand for latest tires...
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...Demand, Supply and Price Determination Demand Demand is the quantity households are willing and able to purchase over a range of prices over a period of time. [‘Able’ means you must have the money to back up your desire, i.e. ‘effective’ demand.] Quantity demanded is the amount households are willing and able to purchase at a particular price over a period of time. [So Q. D’ed is a particular combination of Quantity & Price, whereas Demand covers all possible combinations.] This distinction is crucial!!! Assumptions:- 1. Specific time period. 2. Ceteris paribus. 3. Consumer rationality. Law of Demand: At higher prices a lower quantity will be demanded than at lower prices, other things being equal (ceteris paribus). This arises due to two separate effects: 1. Income Effect – the effect of a change in price on quantity demanded arising from the consumer becoming better or worse off as a result of the price change. 2. Substitution Effect – the effect of a change in price on quantity demanded arising from the consumer switching to or from alternative (substitute) products. Information on demand is usually presented as a schedule or more commonly a graph. A demand schedule is a table showing the different total quantities of a good that consumers are willing and able to buy at various prices over a given period of time. A demand curve is a graph showing the relationship between the price of a good and the quantity of the good demanded...
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...have chosen for this supply and demand paper is buying a new car. I just bought a brand new 2012 Honda Accord LX from the Crystal lake, Illinois Honda dealer. I traded in my old 1999 Honda Accord EX which had 195000 miles on it. I had bought that car new as well from the Honda dealer. I was going to get my old car fixed but it would have cost me 2000.00 the Honda dealer said. They suggested I buy a new one and I was promised a good deal because sales were low for them. I made the decision to trade my old Honda Accord for 4000.00 and get the new one. I am so happy I made the right choice of buying a new car instead of throwing money away in the old one. In this paper I would like to talk about factors that could cause possible changes in the supply and demand when buying a new car. Determine at least two substitutes there may be for new cars. Also, check at least two complements there may be for new cars. Lastly, determine the key determinants of the price elasticity of demand. Some of the factors that could cause possible changes in supply and demand when buying a new car are when there are high unemployment rates and lower wages, the demand for new cars will be less. When people have a good job and make more than minimum wage they may buy a car for every driver in the house and then the demand for new cars will automatically increase. Also, when gas prices are really high people may avoid buying new cars especially since a lot of newer models have really big motors...
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...there are many things that I must consider, but more than anything I want to make sure that I am satisfied with my purchase. When both the supplier and consumer are satisfied with the price of the product, market equilibrium occurs. According to businessdictionary.com market equilibrium occurs when the supply of an item is exactly equal to its demand. Changes in the determinants of demand, such as consumer expectations can affect the equilibrium of a market. Supply determinants, such as producer expectations can cause a specific market to decrease or increase in supply, resulting in changes of equilibrium quantity. When market equilibrium occurs, both the buyer and seller get what they want. For example, when I was in the market to purchase a new vehicle there were a lot thins that I took into consideration. I previously purchased Kia spectra and put one hundred dollars down and just walked out the door with my new car. I was so excited about having my own car I didn’t really care or think about the specifics concerning my payments or my interest rates. This time around I wanted to make sure I was satisfied with my car purchase. I wanted a Volkswagen Jetta. After looking at the prices of some of the used models in my area I decided that I was going to purchase this vehicle brand new. The used price for the vehicle that I wanted was only four thousand dollars less that buying a new one. The only difference was the amount of my down payment. But making a larger down payment would...
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...decision-making, and examines the economic activities of individual consumers and producers (households and business firms). Subject 2: Demand, Supply, and Market Equilibrium 3. The Law of Demand states that there is an inverse relationship between price and quantity demanded. The main objective for consumer demand is to maximize utility, which is satisfying power. Therefore the consumer would like to pay the lowest price. 4. There are five determinants for consumer demand: taste, income, and price, prices of substitutes and complements, and future expectations. If you have a taste for a certain product, you are more likely to buy more. If you have a low income, you may not be able to buy an expensive product. Also, if a product of a substitute is cheaper, consumers may switch to a new product. Finally, future expectations may influence a consumers demand for a certain product because if it will be cheaper in the future, they may hold off on buying it until the price goes down. 5. Substitutes are goods that can serve as alternatives for one another. When the price of one increases; demand for the other increases. An example would be Pizza Hut and Dominos Pizza. Complements are goods that go together, a decrease in the price of one would result...
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...Determinants of Price Elasticity of Demand Register for FREE to remove ads and unlock more features! Learn more A good's price elasticity of demand is largely determined by the availability of substitute goods. Learning Objectives • Explain how a good's price elasticity of demand may be different in the short term than in the long term. • Relate the existence of close substitutes to a good's price elasticity of demand. ________________________________________ Key Points o A good with more close substitutes will likely have a higher elasticity. o The higher the percentage of a consumer's income used to pay for the product, the higher the elasticity tends to be. o For non-durable goods, the longer a price change holds, the higher the elasticity is likely to be. o The more necessary a good is, the lower the price elasticity of demand. ________________________________________ Term • Substitute Good A good that fulfills a consumer need in a way that is similar to another good. Register for FREE to remove ads and unlock more features! Learn more Full Text The price elasticity of demand (PED) is a measure of how much the quantity demanded changes with a change in price. The PED for a given good is determined by one or a combination of the following factors: • Availability of substitute goods: The more possible substitutes there are for a given good or service, the greater the elasticity. When several close substitutes are available, consumers can easily switch from...
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...INDIVIDUAL PRESENTATION ASSIGNMENT CAR INDUSTRY “GENERAL MOTORS UK LTD.” Student Name: Muhamad Aaron Bin Maseri Student number: Seminar Tutor: Seminar Session: Wednesday (2.00 p.m. – 3.00 p.m.) C118 Date of submission: 22nd April 2015 by 3.00 p.m. Word count: 1093 words (+/- 10%) TABLE OF CONTENTS 1. Slides and Notes * Slide 1-10 3-15 2. Research notes * Slide 2: Contents 16 * Slide 3: Introduction 17 * Slide 4: Size and Corporate objectives 18 * Slide 5: Growth 20 * Slide 6: Strategic group and main competitors 21 * Slide 7: Economic environment 22 * Slide 8: Competitive/industry environment 23 * Slide 9: Internationalisation/international environment 24 * Slide 10: Conclusion 25 3. Annotated Bibliography 26-28 4. References 29-30 1. SLIDES AND NOTES Slide 1 Slide 2 This presentation will mainly assess about the General Motors UK Limited background, size and corporate objectives, growth, strategic group and main competitors, the economic environment, competitive or industry environment, and internationalisation or the international business environment. This presentation will end with a short conclusion. Slide 3 Introduction The General Motors Company bought Vauxhall for $2.5 million in 1925 and since then, the company operates under General Motors...
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...Keller Graduate School Business Economics 26 July 2014 Project I The price of gasoline fluctuates due to the price of crude oil. Gasoline is made from crude oil (found in the earth). Gasoline prices have been on the rise due to increasing crude oil prices. West Texas Intermediate (U.S) and Brent Crude (World) are two of the most important crude oil market suppliers (Dent & Sakurai, 2014). These organizations crude oil price is mandated by the Organization of Petroleum Exporting Countries (OPEC). Private business owner for gasoline stations seeks a higher maximum profit per gallon when prices increase. But, when the price of gasoline increases it affects the economy. Consumers are hit with a tight budget on their finances to sacrifice a gallon of gas. As, prices increase gasoline stations become competitive; usually prices are slightly close. Driving within my city, I notice that station prices are higher or lower, and as I research the topic gasoline it gives me a clearer understanding. It’s noticeable that the same amount of vehicles is at each station. From personal opinion, I believe it depends on the location (which side of the highway) and brand name. I’m a consumer that is more concerned with price; therefore if the station on the other side of the highway is offering a lower price, I’ll go the extras to get that price. Grocery stores have made it convenient for consumers to save at the pump, by turning one’s grocery bill into...
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...non-luxury cars for its local market in the country since 1998. * Li Shufu was the founder of the company, who was basically a poet and has a philosophical attitude towards life. * The time of the case is year 2010. 2. Situational Analysis Li Shufu was born in China in 1963, the son of a small business owner. He started the business from making photographs of tourists, then he shifted to making refrigerators and refrigerator parts, and from there he diversified again to motorcycle production business. At the age of 35, in 1998, he started the business of producing cars. The name “Geely” came to him in a dream. Geely was a privately owned firm, which was involved in producing non-luxury cars for its local market of China. For the acquisition of Volvo, Li obtained financing from state-owned banks and governments in China and this acquisition made Geely able to enter in the new market of luxury cars by following a “related diversification” strategy. Now Geely is heading towards lowering the costs and making Volvo more profitable in the industry and following a growth strategy in its business 3. DEEP LIST Analysis i. Demographics Volvo was a Swedish company; Geely was planning to produce luxury cars at Volvo plants and offering these cars to local Chinese, who desire to drive these luxury cars. This strategy enabled the Geely to target a new market segment in the country. ii. Ecological Producing and providing good quality luxury cars to the society...
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...this input is used upon variables such as money lending or investing and is a man made output due to the specifics or circumstances regarding the capitol. Lastly entrepreneur, it is the creation of oneself through ownership of a business. This input is also man made due to variables that can dictate the output. An example would be up front capitol, also factors such as business plan, location, current market. Many variables come into play regarding entrepreneur and the output of such is completely determined upon human, not natural circumstances. (2) The impact of oil prices throughout the economy is astonishing. The dependency we have as an economy of oil is unfathomable. To simply state it, the more the economy flourishes the more productivity and activity throughout that economy. Well in retrospect, due to the high volume of production, this in turn creates more use of oil and more use then creates higher prices for oil itself. It is somewhat of an oxymoron, when economies flourish, oil companies flourish due to high demand and higher pricing. When the economy...
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...SUPPLY AND DEMAND WHAT IS THIS CHAPTER ALL ABOUT? This chapter introduces market behavior and the intricacies of the market mechanism. It is helpful to continue to answer the basic questions of WHAT, HOW, and FOR WHOM and to briefly outline how the market system answers them. The chapter focuses on the allocative and distributive functions of the price system. The section on disequilibrium pricing -- price ceilings and floors -- provides an opportunity to illustrate the upside and downside of interference with market pricing mechanisms. The opening illustration of a kidney sale on eBay demonstrates the power and potential problems of markets. This introduction sets the general direction of this chapter, which is to look at how the market system answers the following questions: 1. What determines the price of a good or a service? 2. How does the price of a product affect its production and consumption? 3. Why do prices and production levels often change? NEW TO THIS EDITION • New headline on campus drinking • New headline on demand shifts for natural gas • One new question for discussion • One new problem LECTURE LAUNCHERS Where should you start? Supply and Demand analysis is the foundation of much of the analysis the student will perform during the semester. Therefore, it is important that students get a good start with this material. 1. Begin your discussion by identifying...
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