...INTERNAL RESEARCH ASSIGNMENT Name of the candidate: ASIF EKBAL Enrolment no. : 08715903912 Course: MBA 1ST Yr. Batch: 2012 Subject: MANAGERIAL ECONOMICS Subject code: MS105 Topic of assignment: UNIT 1 Subject Teacher’s name: MS MAMTA RANI Research Assignment Q.1) “Inferior goods are not those goods in case of which the law of demand fails, inferior goods are those goods in case of which income effect is negative or these are the goods the demand for which decreases when income increases Yes, law of demand fails in case of GIFFIN GOODS. It is in the case of these goods that there is (A) Inverse relationship between income and demand (B) Positive relationship between price and demand.” In the light of above statement explains the following statement with the help of an example: “WHILE ALL GIFFIN GOODS ARE INFERIOR GOODS, ALL INFERIOR GOODS ARE NOT GIFFIN GOODS” Solution:- Demand may be defined as desire backed by adequate purchasing power. Benham therefore says – “the demand for anything at a given price, is the amount of it which will be bought per unit of time at that price.” Law of Demand: - The Law of Demand states that when the price of a commodity rises, there occurs a fall in the amount purchased. Conversely, when the price of a commodity falls, the amount purchased increases. From the Law of Demand it follows...
Words: 5583 - Pages: 23
...Price elasticity of demand The price elasticity of demand is a measurement formula used by economist to define the sensitivity of the quantity demanded when there is a change in the price of a goods, ceteris paribus. The result is usually a negative number for most goods unless it is Veblen goods or Giffen goods. However, economist ignores the negative sign and takes only the value of the equation that shows the relation between price and quantity demanded. The calculation for price elasticity of demand is based on the percentage of changes in the quantity demanded and the price. Below are the formula for calculating the price elasticity of demand. Price elasticity of demand (Ed) = Percentage of changes in quantity demanded Percentage of changes in price There are 5 categories of price elasticity of demand and below are the example for each category: 1) Perfectly inelastic – mean that the change in price will not affect the change in quantity demanded, consumers will buy the good regardless of the change of price. Example like if the price of the petrol has increase from RM 5 to RM 10 per litre, consumer will still purchase the same amount. The percentage of changes in price of oil is 100% and the percentage of changes in quantity demanded is 0%. So the calculation is 0/100 = 0 .In perfectly inelastic Ed is always equal to zero. 2) Inelastic/ relatively inelastic-is about a change in price will just make a smaller change in quantity demanded. Example...
Words: 450 - Pages: 2
...researchers can explain why the consumers would buy more of the product when its price is less as compared to when its price is high. Another elaboration of the theory is that it shows the reason why the households spend their income as they always do (Haugtvedt, Herr, & Kardes, 2008). The greater assumption is that every consumer is rational and aims at maximizing their satisfaction. Some major theories explain the consumer behavior. First is the Cardinalist approach or the marginal utility theory and the second is the ordinalist approach or the analysis of the indifference curves. The former describes extra satisfaction a consumer derives after consuming an extra unit of a commodity while consumption of all other products remains unchanged. The law of diminishing marginal utility gives a thorough elaboration on why the demand curves always have a downward sloping nature. The latter shows the line of combinations (indifference curves) of the quantity of two products say A and B such that the individual is indifferent between all combinations on the curve. Theory of consumer choice and demand curves The law of demand states that as the price of a product rises, the rate of consumption of the product declines despite the monetary compensation of the individual for the impact of the high price of the commodity. It is known...
Words: 1179 - Pages: 5
...Veblen good A commodity is a Veblen good if people's preference for buying it increases as a direct function of its price. The definition does not require that any Veblen goods actually exist. However, it is claimed that some types of high-status goods, such as expensive wines or perfumes are Veblen goods, in that decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive or high status products. The Veblen effect is named after the economist Thorstein Veblen, who invented the concepts of conspicuous consumption and status-seeking. The Veblen effect is one of a family of theoretically possible anomalies in the general theory of demand in microeconomics. Other related effects are: the snob effect: preference for a good decreases as the number of people buying it increases, and the bandwagon effect: preference for a good increases as the number of people buying it increases; Note that none of these effects in itself predicts what will happen to actual quantity demanded for the good (the number of units purchased) as price changes - they refer only to preferences or propensities to purchase. The actual effect on demand will depend on the range of other goods available, their prices, and their substitutabilities for the goods concerned. The effects are anomalies within demand theory because the theory normally assumes that preferences are independent of price or the number of units being sold. They...
Words: 1156 - Pages: 5
...“The Law of Demand states that the demand for a product is inversely related to the price of such product. This implies that quantity demanded increases when price decreases. Is this always true?” This isn’t always true. In these cases it would be a shift in the demand curve. The demand curve will shift when non-price factors exist. There are a number of factors that show that the law of demand doesn’t apply. One exception is Giffen goods. According to Bannock (2003), “a Giffen good is a good where an increase in price of a basic item leads to an increase in demand.” The author also gives an example of the poor in nineteenth century and the price of bread where they still bought more bread despite its higher price. If inflation and high interest rates occur then money would also be an example of this due to an increase in demand making the price of money rise. Another exception is Veblen goods, which are types of luxury goods that are in demand because of the high prices asked for them. An example of these goods is jewelry (Diamonds), luxury cars (Tesla/Rolls Royce), luxury handbags (Michael Kors/Prada/Kate Spade). This type of good is wanted for the status and as these prices goes up so does the demand. Starbucks Coffee would be a Veblen good according to Piong due to its status-enhancing brand. Another factor is inelastic goods, which is when demand does not change even when prices change. An example of this would be necessary medication like insulin in which the price...
Words: 535 - Pages: 3
...Economics Group Assignment With Individual Component Questions A, B & C EC161/EC282 Walter Heering Seminar Group K Louis Quinton Toby Redman Charlie Spall Question 1……………………………………………………………………………….3 Question 2…………………………………………………………………………….12 Question 3…………………………………………………………………………….23 Toby Redman – Student Number: 13820112 Seminar group K EC161/EC282: Economics coursework: Group assignment with individual component – Question A Table of Contents Introduction 4 Price Ceiling 4 Main Body 5 How It Effects Landlords 6 How It Effects Consumers 7 How It Creates A Black Market For The Good 8 Conclusion 10 References 11 Introduction Price Ceiling A price ceiling is a government imposed price control to make sure that a goods can not be sold for more than a certain price, they cap the price at a certain point rather than letting be sold at the equilibrium. When a price ceiling is set there is more demand in the market than the product being supplied. The government has created excess demand by driving down the price of the product. Taylor (2006) claims that in order for a price ceiling to work it must be set below the equilibrium price of a market. If this does not happen then the ceiling would not have an effect on the price of a good because it would still continue to operate at the current price. As shown on the graph above when the price ceiling is put into place the price shifts from P* to P1 this then lowers the quantity available to the...
Words: 7040 - Pages: 29
...supply at the market. That is when; the supplied good are equal to the demanded good at the market. However, when in the market there is a high level of supply and as the result prices start at very low what happen is surplus of supplied good in the market. Or if the situation is other way round; there is very low level of supply and as the result prices start at very high what happen is shortage of supplied good in the market. Further, surplus means there is too much of a product more than what consumers need in the market. While in another hand, shortage means there is less of a product for fulfilling the consumers need in the market. ANSWER FOR QUESTION 4 Giffen goods are those consumer goods that, in a simple description, go against the basic nature of relationship between demand and price. Meaning; Giffen goods are consumer goods that their demand increases when their prices increase – which is completely unusual for consumer goods where by demand...
Words: 522 - Pages: 3
...when the commodity’s price changes and all other prices and conditions do not change. The main assumptions are: * Habits, tastes and fashions remain constant. * Money, income of the consumer does not change. * Prices of other goods remain constant. * The commodity in question has no substitute or is not in competition by other goods. * The commodity is a normal good and has no prestige or status value. * People do not expect changes in the price. * Price is independent and demand is dependent. Exceptions to the law of demand Generally, the amount demanded of a good increases with a decrease in price of the good and vice versa. In some cases, however, this may not be true. Such situations are explained below. Giffen goods Initially...
Words: 846 - Pages: 4
...DEFINITION OF GOODS: A good is a product that can be used to satisfy some desire or need. More narrowly but commonly, a good is a tangible physical product that can be contrasted with a service which is intangible. As such, it is capable of being delivered to a purchaser and involves the transfer of ownership from seller to customer. TYPES OF GOODS: Inferior Good: Goods for which demand decreases as consumer income rises. Example: Inter-city bus service and inexpensive foods such as hamburger, and frozen dinners, cheaper cars, second hand/used television, clothing from a charity store. Examples- 1) A Kroger brand of imitation juice beverage in gallon milk jugs. 2) "Value-Time" Ice Cream: Ice cream sold in 2.5 gallon plastic pails at grocery stores, with an emphasis on value and quantity as opposed to quality or advertising. 3) Cosmic brownies: Low cost cakes resembling small brownies manufactured by the Little Debbies company. Tesco value bread. When your income rises you buy less Tesco value bread and more high quality, organic bread. 4) Tahitian Treat: A low-cost carbonated fruit punch beverage. 5) Thirst Rockers Normal Good: Goods for which demand increases as consumer income rises and falls when income decreases but price remains constant. Most goods are normal goods, hence the name “normal.” food,water,clothing, salt, match box, vegetables. Superior Good: Goods that will tend to make up a larger proportion of consumption...
Words: 971 - Pages: 4
...LEVERAGE Problem: 1 The McGwire co. produces baseball gloves. The company's income Statement for the year 2011 is as follows: McGwire Company Income Statement For the year ended December31, 2011 |Sales (20,000 gloves at $60 each) |$1,200,000.00 | |Less: Variable Costs ( 20,000 gloves at $20 each) |$400,000.00 | |Contribution ( 20,000 gloves at $40 each) |$800,000.00 | |Less: Fixed Costs |$600,000.00 | |Earning before Interest & Taxes (EBIT) |$200,000.00 | |Interest Expenses |$80,000.00 | |Earnings before Taxes (EBT) |$120,000.00 | |Income Tax expense (30%) |$36,000.00 | |Earnings After taxes (EAT) |$84,000.00 | Given This Income Statement, Compute the Following: a. Degree of Operating Leverage (DOL) b....
Words: 1532 - Pages: 7
...country that produces and consumes two goods, manufactures and food. The country is small, unable to affect its terms of trade; we will assume that it exports manufactures and imports food. Thus the country sells its manufactures to the world market at a given world price P * and buys food at a given world price P * . M F Figure 1 illustrates the position of this country in the absence of a tariff. The economy produces at the point on its production possibility frontier that is tangent to a line with slope -P * >P * , indicated by Q 1. This line also defines the economy’s budget constraint, M F that is, all the consumption points it can afford. The economy chooses the point on the budget constraint that is tangent to the highest possible indifference curve; this point is shown as D 1. Figure 1 Free Trade Equilibrium for a Small Country The country produces at the point on its production frontier that is tangent to a line whose slope equals...
Words: 1520 - Pages: 7
...commodity bundle chosen by a utility-maximizing consumer from a given budget. Given prices and income, you know how to graph a consumer’s budget. If you also know the consumer’s preferences, you can graph some of his indifference curves. The consumer will choose the “best” indifference curve that he can reach given his budget. But when you try to do this, you have to ask yourself, “How do I find the most desirable indifference curve that the consumer can reach?” The answer to this question is “look in the likely places.” Where are the likely places? As your textbook tells you, there are three kinds of likely places. These are: (i) a tangency between an indifference curve and the budget line; (ii) a kink in an indifference curve; (iii) a “corner” where the consumer specializes in consuming just one good. Here is how you find a point of tangency if we are told the consumer’s utility function, the prices of both goods, and the consumer’s income. The budget line and an indifference curve are tangent at a point (x1 , x2 ) if they have the same slope at that point. Now the slope of an indifference curve at (x1 , x2 ) is the ratio −M U1 (x1 , x2 )/M U2 (x1 , x2 ). (This slope is also known as the marginal rate of substitution.) The slope of the budget line is −p1 /p2 . Therefore an indifference curve is tangent to the budget line at the point (x1 , x2 ) when M U1 (x1 , x2 )/M U2 (x1 , x2 ) = p1 /p2 . This gives us one equation in the two unknowns, x1 and x2 . If we hope to solve for the x’s, we need another...
Words: 9302 - Pages: 38
...good. What would you do and why? In this case, we are the suppliers of a gas station. We would increase the price of the Gas taking the advantage that this good is a low price-elasticity of demand one. We should consider a competitive price and that way increase our income without harming the user’s economy. ----------------------- Consumer maximizing behavior Consumption Possibilities -Constraint on consumption possibilities of the budget line which elements are the Income, Price and Quantity. The Household’s Consumption Choice The household chooses the best affordable point -The best affordable point has two properties. It is On the budget line On the highest attainable indifference curve -Following figures show the best affordable point Preferences and Indifference Curves -Four fundamental assumptions -Preferences do not depend on prices -Preferences do not depend on income -More of any good is preferred to less -The more of good A and the less...
Words: 310 - Pages: 2
...1. Suppose the price of regular-octane petrol were 20 paisa per gallon higher in Gujranwala than in Lahore. Do you think there would be an opportunity for arbitrage (i.e., that firms could buy petrol in Lahore and then sell it at a profit in Gujranwala)? Why or why not? ANS: Lahore and Gujranwala represent separate geographic markets for gasoline because of high transportation costs. There would be an opportunity for arbitrage if transportation costs were less than 20 cents per gallon. Then arbitrageurs could make a profit by purchasing gasoline in Lahore, paying to transport it to Gujranwala and then selling it in Gujranwala. If the transportation costs were 20 cents or higher, however, no arbitrage would take place. 2: The price of long-distance telephone service fell from 40 cents per minute in 1996 to 22 cents per minute in 1999, a 45% (18 cents/40 cents) decrease. The Consumer Price Index increased by 10% over this period. What happened to the real price of telephone service? Ans: Let the CPI for 1996 equal 100 and the CPI for 1999 equal 110, which reflects a 10% increase in the overall price level. Now let’s find the real price of telephone service (in 1996 dollars) in each year. The real price in 1996 is 40 cents. To find the real price in 1999 divide CPI1996 by CPI1999 and multiply the result by the nominal price in 1999. The result is (100/110) (22) = 20 cents. The real price therefore fell from 40 to 20 cents, a 50% decline. 3: Suppose the demand...
Words: 1187 - Pages: 5
...Executive summary Advertisement campaign in relation to neoclassical theory of consumer, understanding what consumer behavior in terms of their wants and needs, not forgetting their personality, attitude, perception, is not only important to marketers whose main goal is to make profit but also to the government and its various regulatory agencies and the whole society. Such a theory is usually based on a consumer image as one of the highest rational decision maker that widely seeks to maximize customer satisfaction by way of providing an informed and reasoned analysis of utility and value. The consumer behavior is known to create strong assumptions which are based on both computational and informational bases of consumer theory. Contents 1.0 Description of the advertisement 3 2.0 Market Group 4 3.0 Problem recognition 5 4.0 Neoclassical consumer theory 6 5.0 Application of neoclassical theory of consumer 8 6.0 Conclusion 9 7.0 Work cited 10 Consumer Behavior 1.0 Description of the advertisement The advertising campaign is for an airline company QANTAS that has its base in Australia. It has a picture of a young girl having fun while watching a movie using the toy movie machine. The airline is targeting plane travelers by promising to offer the best flight entertainment. This according to the airline will be able to have them enjoy their journey through entertainment and not be able to realize how long the journey is. The airline...
Words: 2351 - Pages: 10
