Today, the market’s diversity provides numerous low calorie microwavable food options. In addition, increases in the income of individuals, people have the capacity to live easier lifestyles and this has led to increase in demand for certain products of preference.
The quantity demanded equation of the product is given by;
Qd = -5200 – 42P + 20Px + 5.2I + 0.2A + 2.5M
Therefore, the elasticity of P (partial differentiation)
δQdp = -42 Assuming all other independent variables are constant
Hence elasticity of P = (δQdp). (δPQ )
For the 3-pack unit = -42(5-5200-425+206+5.25500+0.210,000+2.5(5000))
Therefore = -42 (537810) = -212656 = -0.007906
Solving for Px
ΔQdp = 20(637810)=0.010579
Solving for I
Solving for A
QdI = 0.2(10,00037810) = 0.0528
Solving for M
QdM = 2.5(500037810) = 0.3306
All independent variables here are absolute values and the elasticity is negative. This shows demand is inelastic to all the variables. When the price Px for the competitor is inelastic, indicates a situation where any slight increase or decrease in price of the commodity results in no change in the quantity demanded of the microwave.
When the per capital income of the standard metropolitan statistical area changes, there is a slight change in the quantity demand of the product. When the monthly advertising expenditure (A) changes slightly it causes a slight change in the quantity demand as the number of people advertised to has altered.
The firm should not cut its price to increase the market share since the price of the leading competitors produced shows/indicates no increase in the quantity demanded of the commodity therefore the price decrease isn’t advisable for the company.
The equation for the demand curve; Qd = -5200-42P+20PX+5.2I+0.20A+0.25M
- Price in dollars = 100 Qd = 18,098 Qs = 0
= 200 Qd = 13,898 Qs = 7,909.89
= 300 Qd = 9,698 Qs = 15,819.80
= 400 Qd = 5,498 Qs = 23,729.70
= 500 Qd = 1,298 Qs = 31,639.60
=600 Qd = -2,902 Qs = 39,549.50
c) The equilibrium price is $250
d) The demand of a commodity changes owing to two basic factors including; the demand change because of the price alterations and demand changes with respect to changes in other factors other than price also referred to a shifts in the demand curve. Therefore, the factor causing change along the demand curve is price. For instance; where there is an increase in price of a commodity it leads to a decrease in the quantity demanded of the commodity and vice versa ceteris paribus.
Changes in factors affecting a commodity in the short run usually culminates in a change along the demand curve while the alterations in factors affecting demand in the long run results in a shift of the curve.
The factors causing shifts in the demand curve include factors such as;
- The price change of a complement good
- The changes in price of a substitute or complimentary good
- Changes in consumer’s income; for a normal good, a change will cause an increase or decrease in the quantity demanded of the product
- A change in the population of consumers of a commodity
- Also a change in the level of technology applied and the information received
Consumer’s taste and preference
The consumer tastes include; traditions/customs and habits. The commodity that the consumer has greater taste and preference results in a higher demand causing a shift in demand to the right. Whereas, a commodity in which the consumer derives less preference and low taste claim a lower demand causing a shift in the demand curve to the left.
Income of the consumer
The quantity demanded of a normal good will increase if the consumer’s income increases leading to a shift in the demand curve of the good to the right and the quantity demanded of the normal good reduces when the income of the consumer reduces causing a shift in the demand curve to the left.
Changes in the price of a substitute good
When the price of a substitute good increases, there is an increase in the quantity demanded of the good since consumer will prefer more the good with low pricing. This lead to a shift in the demand curve to the right whereas a decrease in the price of a substitute good will result in a shift of the demand curve to the left.
An increase in population results to an increase in the quantity demanded of a good hence a shift of the demand curve to the right and a decrease in the population results in a decrease in the quantity demanded of a commodity causing a shift of the demand curve to the left.
The demand for a good is affected by the distribution of income. Therefore, in an area where there is an even distribution of income there is greater demand of the commodity hence causing a shift in the demand curve to the right whereas when the income distribution is uneven, the quantity demanded of a good is low hence a shift of the demand curve to the left.
On the other hand, the factors that would cause a shift in the supply curve would include;
- The changes in costs of inputs including; natural resources, labor, assets, and machinery
- Alterations in technology and information received by customers
- Also, changes in the number of suppliers would result in shift of the supply curve
Changes in input costs
The changes in costs of inputs such as raw material, labor, capital assets, and machinery causes a change in the quantity supplied. Therefore, an increase in the costs of inputs will result in a reduction in the quantity supplied of a commodity hence a shift in the demand curve to the left. On the other hand, a decrease in the cost of inputs results in an increase in the quantity supplied of the good.
Changes in technology and Information
The increase in technology and information inflow to the consumers regarding a commodity results in an increase in the quantity supplied whilst a decrease in technology applied and the information received by the consumers causes a decrease in the quantity demanded of the good shifting the supply curve to the left.
Changes in the number of suppliers
An increase in the number of suppliers of a commodity results in a decrease in the quantity demanded of the good to a single supplier hence a decrease in quantity supplied. This causes a shift in the supply curve to the left whereas, a decrease in the number of suppliers of a commodity results in an increase in the quantity supplied of the good causing the supply curve to shift to the right.
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Mickey, R. M., Dunn, O. J., & Clark, V. (2004). Applied statistics: Analysis of variance and regression. Hoboken, N.J: Wiley-Interscience.
Hair, D. (1967). Use of regression equations for projecting trends in demand for paper and board: With projections of demand to 1985 for major grades of paper and board, wood pulp, and pulpwood. Washington, D.C: U.S. Forest Service.