Wednesday, November 28, 2012
Demand Quiz
1. Bernie sells more hamburgers when they are priced at 1$ verses 5$ because the law of supply and demand says that the higher the price, the lower the demand. Less people are willing to pay the higher price.
2. Even though Sally's Salads and Bernie's burgers are set at the same price, a factor that can affect supply and demand is the consumer preference. Some people just prefer hamburgers over salads.
3. One demand factor that can lead to more entree sales for both Bernie and Sally is if they fit towards the ethnicity of the consumers in the area that they are in. If the majority of their consumers are Latino, then they could get a better idea of their consumer preferences, interests, and how to please them.
Extra Credit: Changes in price can change prices in revenue. One factor that could affect elasticity is price sensitivity. People will just buy what is necessary and will look for cheaper substitutes for the same product.
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"Law of demand" only, not "supply and demand" but you are right that fewer consumers are willing to pay a higher price for a given good or service than a lower one. You are correct that tastes and preferences do affect demand but number 3 also addresses tastes and preferences. The correct response is income or # of consumers, etc. Elasticity is price sensitivity and it can be affected by how "necessary" a good is or how many substitutes it has.
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