Podcast
Questions and Answers
What is the definition of consumer surplus?
What is the definition of consumer surplus?
- The total value of the product purchased by consumers. opp
- The sum total of all values consumers assign to a product.
- The difference between the marginal value to the consumer and the price paid.
- The increase in demand due to external factors. (correct)
What happens according to the First Law of Demand?
What happens according to the First Law of Demand?
- Consumers will purchase less as the price falls.
- Consumers demand more when the price falls, if all other factors are constant. (correct)
- Consumers will only buy when the price is less than the marginal value.
- Consumer behavior is unaffected by changes in price.
What is the primary goal of marginal analysis by consumers?
What is the primary goal of marginal analysis by consumers?
- To compare the prices of all products in the market.
- To minimize the expenditure on goods purchased.
- To maximize total consumption regardless of price.
- To evaluate the additional value gained versus the price paid for each additional unit. (correct)
In terms of demand curves, what does a rightward shift indicate?
In terms of demand curves, what does a rightward shift indicate?
How is aggregate demand characterized?
How is aggregate demand characterized?
If a pizza consumer values the fifth slice at $1, at what price would they choose not to buy it?
If a pizza consumer values the fifth slice at $1, at what price would they choose not to buy it?
Which scenario exemplifies simple pricing?
Which scenario exemplifies simple pricing?
How does the total value of consuming multiple units of a product change?
How does the total value of consuming multiple units of a product change?
What is the condition for determining the optimal price in a market?
What is the condition for determining the optimal price in a market?
Which equation expresses price elasticity of demand?
Which equation expresses price elasticity of demand?
Which factor helps make demand more elastic?
Which factor helps make demand more elastic?
What does the stay-even analysis help a business determine?
What does the stay-even analysis help a business determine?
What is the likely outcome when MR > MC according to pricing strategy?
What is the likely outcome when MR > MC according to pricing strategy?
In the context of the Hot Wheels case, what was the effect of the price increase?
In the context of the Hot Wheels case, what was the effect of the price increase?
Which of the following is NOT a measure of elasticity?
Which of the following is NOT a measure of elasticity?
What generally happens if the actual margin is greater than the desired margin?
What generally happens if the actual margin is greater than the desired margin?
What does profit equal in a pricing decision?
What does profit equal in a pricing decision?
At what point is profit maximized according to marginal analysis?
At what point is profit maximized according to marginal analysis?
If the marginal revenue (MR) is less than the marginal cost (MC) when selling an additional unit, what should the business do?
If the marginal revenue (MR) is less than the marginal cost (MC) when selling an additional unit, what should the business do?
According to the example given, what is the profit maximizing quantity?
According to the example given, what is the profit maximizing quantity?
What is the marginal revenue (MR) of selling the 4th unit in the example provided?
What is the marginal revenue (MR) of selling the 4th unit in the example provided?
If the marginal cost (MC) of producing an additional unit is $1.50 and marginal revenue (MR) is $1.00, how would this affect production decisions?
If the marginal cost (MC) of producing an additional unit is $1.50 and marginal revenue (MR) is $1.00, how would this affect production decisions?
What is a fundamental characteristic of the demand curve that influences pricing decisions?
What is a fundamental characteristic of the demand curve that influences pricing decisions?
What happens to total profit when the marginal revenue from an additional unit is lower than marginal cost?
What happens to total profit when the marginal revenue from an additional unit is lower than marginal cost?
What does MR > MC indicate in terms of pricing strategy?
What does MR > MC indicate in terms of pricing strategy?
Which factor contributes to demand elasticity?
Which factor contributes to demand elasticity?
When demand for an individual brand is compared to industry aggregate demand, what is generally true?
When demand for an individual brand is compared to industry aggregate demand, what is generally true?
What effect do complements have on demand elasticity?
What effect do complements have on demand elasticity?
How does the elasticity of demand change over time?
How does the elasticity of demand change over time?
What is the relationship between price increases and demand elasticity?
What is the relationship between price increases and demand elasticity?
What happens when the current margin is greater than the desired margin?
What happens when the current margin is greater than the desired margin?
What is the formula that represents MR > MC?
What is the formula that represents MR > MC?
What factor contributes to complementary goods having less elastic demand?
What factor contributes to complementary goods having less elastic demand?
How does the demand curve change in the long run?
How does the demand curve change in the long run?
What happens to demand elasticity as the price of a product increases?
What happens to demand elasticity as the price of a product increases?
What is the relationship between income changes and the demand for inferior goods?
What is the relationship between income changes and the demand for inferior goods?
What is the cross-price elasticity of demand for substitutes?
What is the cross-price elasticity of demand for substitutes?
What does stay-even analysis help to determine?
What does stay-even analysis help to determine?
Which component is NOT used in calculating stay-even analysis?
Which component is NOT used in calculating stay-even analysis?
What does a positive cross-price elasticity indicate about two goods?
What does a positive cross-price elasticity indicate about two goods?
Flashcards are hidden until you start studying
Study Notes
Pricing and Aggregate Demand
- Total number of units consumers willing to purchase at a given price is known as Aggregate Demand or Market Demand.
- Price is an extent decision; a trade-off between price and quantity driven by the relationship between Marginal Revenue (MR) and Marginal Cost (MC).
- Reduce price (increase quantity) if MR > MC.
- Increase price (reduce quantity) if MR < MC.
- Optimum price occurs when MR = MC.
- Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.
Elasticity and Price
- MR > MC implies (P -Â MC)/P > 1/|e|.
- If the current margin is larger than the desired margin, reduce price.
- The higher the elasticity of demand (smaller 1/|e|), the less you can raise price over MC.
- Five factors influence demand elasticity and optimal pricing:
- Products with close substitutes have elastic demand.
- Demand for an individual brand is more elastic than industry aggregate demand.
- Products with many complements have less elastic demand.
- Demand curves become more elastic in the long run.
- As price increases, demand becomes more elastic.
Stay-Even Analysis
- Stay-even analysis calculates the necessary sales volume to maintain the same profit level after price or cost changes.
- By comparing the required sales volume to estimates or market surveys, businesses can determine the potential profitability of price adjustments.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
