Explain the law of demand and the inverse relation between demand and price .

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Answer 1

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Problem 3 You are given the following demand for European luxury automobiles: Q=1,000 P-0.5.2/1.6 where P-Price of European luxury cars PA = Price of American luxury cars P, Price of Japanese luxury cars I= Annual income of car buyers Assume that each of the coefficients is statistically significant (i.e., that they passed the t-test). On the basis of the information given, answer the following questions 1. Comment on the degree of substitutability between European and American luxury cars and between European and Japanese luxury cars. Explain some possible reasons for the results in the equation. 2. Comment on the coefficient for the income variable. Is this result what you would expect? Explain. 3. Comment on the coefficient of the European car price variable. Is that what you would expect? Explain.

Problem 2: A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product: Q=+15,000-2.80P+150A+0.3P+0.35Pm+0.2Pc (5,234) (1.29) (175) (0.12) (0.17) (0.13) R²=0.68 SER 786 F=21.25 The variables and their assumed values are P = Price of basic model = 7,000 Q==Quantity A = Advertising expenditures (in thousands) = 52 P = Average price of a personal computer = 4,000 P. Average price of a minicomputer = 15,000 Pe Average price of a leading competitor's workstation = 8,000 1. Compute the elasticities for each variable. On this basis, discuss the relative impact that each variable has on the demand. What implications do these results have for the firm's marketing and pricing policies? 2. Conduct a t-test for the statistical significance of each variable. In each case, state whether a one-tail or two-tail test is required. What difference, if any, does it make to…

Answer 2

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Answer 3

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Answer 4

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

Answer 6

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

Answer 7

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Answer 8

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.