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Analyzing the effects of non-price factors on demand

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1). Consider the demand for computers. For each of the following, state the effect on demand:

a.An increase in consumer incomes.
b.An increase in the price of computers.
c.A decrease in the price of internet service providers.
d.A decrease in the price of semiconductors.
e.It is October, and consumers expect that computers will go on sale just before Christmas.

2). The demand curve is given by

Qd = 500 - 5Px + 0-5 I + 10Py - 2Pz
Where
Qd = quantity demanded of good X
Px = price of good X
I = consumer income, in thousands
Py = price of good Y
Pz = price of good Z

a.Based on the demand curve above, is X a normal or an inferior good?
b.Based on the demand curve above, what is the relationship between good X and good Y?
c.Based on the demand curve above, what is the relationship between good X and good Z?
d.What is the equation of the demand curve if consumer incomes are $30,000, the price of good Y is $10, and the price of good Z is $20?
e.Graph the demand curve that you found in (d), showing intercepts and slope.
f.If the price of good X is $15, what is the quantity demanded? Show this point on your demand curve.
g.Now suppose the price of good Y rises to $15. Graph the new demand curve.

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Solution:

1). Consider the demand for computers. For each of the following, state the effect on demand:
a. An increase in consumer incomes.
An increase in income will increase the consumption of normal goods, demand will increase. Demand curve will shift towards right

b. An increase in the price of computers.
It is a movement along the curve, qunatity demanded will decrease.

c. A decrease in the price of internet service providers.
Internet service is a complementary good for computers. An decrease in price of internet service will increase the demand for ...

Solution Summary

Solution describes the effect of changes in various non-price factors on demand. Solution to second problem predicts nature of good and related good based upon given demand function.

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See Also This Related BrainMass Solution

Analyzing the Changes in Non-Price Factors: Demand and Supply Curves for Several Markets

1. Consider the demand and supply curves for several markets - the market for mineral resources, the market for wheat, the market for sugar, and the market for motor homes. Indicate whether the effect of each of the following is an upward or downward movement along a given demand (or supply) curve, i.e. no effect on demand or supply, or instead involves an outward or inward shift in the relevant demand (or supply) curve for the product in question. How will the market equilibrium price and quantity change from the original equilibrium? (Note: Think only about the short-run effects of these changes and do not concern yourself with the multiple shifts due to long-run effects.) Explain your answers.

a) The mineral market: The costs of producing mineral resources rise as the resources are depleted and it becomes harder to extract the mineral deposits from the earth.

b) The wheat market: Due to floods in the Midwest, half of the wheat crop in the United States is destroyed. At the same time, the price of oats (a substitute for wheat) decreases due to a sharp rise in the number of farmers growing oats in response to consumer demand for health food.

c) The sugar market: There is a drought in the sugar cane fields of Hawaii.

d) The motor home market: There is a decrease in the average price of new motor homes.

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