microeconomics Discussion, economics homework help
microeconomics Discussion, economics homework help
POST 1:
The number of substitutes absolutely effects the demand for any one product and service. If the consumer has choices that are less expensive, more than not the consumer will purchase the lower priced product at a level that was comparable of the original product.
Essentially the more choices the consumer has, the less likely a consumer will choose a specific food option when the price raises. Therefor purchase of that product will decline quickly.
On the other hand when there are fewer choices of substitutes that the consumer can change between. If the consumer wants a particular product he/she will pay the price, but if a consumer is watching his/her bank account they are willing to purchase a product that is similar with a lower price.
I know that consumers will go out of their way to get a particular product. I have a sister that will drive 30 minutes out of her way to get Starbucks coffee every day. She could go to most any gas station and get coffee, but she does not want it period even if it costs her more money.
POST 2:
There are several factors that affect the price elasticity of demand for a product.
The number of close substitutes for a good: The more close substitutes in the market, the more elastic is demand because consumers can easily switch their demand if the price of one product changes relative to others.
The strength of the brand loyalty to a product: Products which have strong consumer brand loyalty often have relatively inelastic demand – consumers are prepared to accept price increases because of other attractive features of the brand which mean they will stay loyal. Conversely, a product with little or no brand loyalty will find demand is elastic – consumers are prepared to quickly switch to an alternative if the price increases
The cost of switching between products:There may be significant costs involved in switching between products. In this case, demand tends to be relatively inelastic. For example, mobile phone service providers may insist on 12 or 18-month contracts being taken out. Some gym memberships require a 3-6 month notice period for cancellation.
The time period allowed following a price change: Demand tends to be more price elastic, the longer that we allow consumers to respond to a price change.
Whether the good is subject to habitual consumption: When this occurs, the consumer becomes less sensitive to the price of the good in question because their default position is to buy the same products at regular intervals.
What does a higher number of substitutes mean for the slope of the demand curve?
With some goods and services, we may actually notice a decrease in demand as income increases. These are considered goods and services of inferior quality that will be dropped by a consumer who receives a salary increase. An example may be the increase in the demand of DVDs as opposed to video cassettes, which are generally considered to be of lower quality. Products for which the demand decreases as income increases have an income elasticity of less than zero. Products that witness no change in demand despite a change in income usually have an income elasticity of zero – these goods and services are considered necessities.
What does a smaller number of substitutes mean for the slope of the demand curve?
It means that buyers cannot respond quickly to price changes, For this reason, the demand curve is steep.
