Demand twisters: Sketch and explain the demand relationship...

Demand twisters: Sketch and explain the demand relationship in each of the following statements. a. I would never buy a Miley Cyrus album! You couldn't even give me one for nothing. b. I generally buy a bit more coffee as the price falls. But once the price falls to $\$ 2$ per pound, I'll buy out the entire stock of the supermarket. c. I spend more on orange juice even as the price rises. (Does this mean that I must be violating the law of demand?) d. Due to a tuition rise, most students at a college find themselves with less disposable income. Almost all of them eat more frequently at the school cafeteria and less often at restaurants, even though prices at the cafeteria have risen, too. (This one requires that you draw both the demand and the supply curves for school cafeteria meals.)

Demand twisters: Sketch and explain the demand relationship in each of the following statements.
a. I would never buy a Miley Cyrus album! You couldn't even give me one for nothing.
b. I generally buy a bit more coffee as the price falls. But once the price falls to $\$ 2$ per pound, I'll buy out the entire stock of the supermarket.
c. I spend more on orange juice even as the price rises. (Does this mean that I must be violating the law of demand?)
d. Due to a tuition rise, most students at a college find themselves with less disposable income. Almost all of them eat more frequently at the school cafeteria and less often at restaurants, even though prices at the cafeteria have risen, too. (This one requires that you draw both the demand and the supply curves for school cafeteria meals.)

Key Concepts

Price Elasticity of Demand

Price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. In cases where demand is inelastic, a rise in price may lead to increased total expenditure on the product because the percentage drop in quantity demanded is smaller than the percentage increase in price.

Threshold Effects and Nonlinear Demand

Threshold effects refer to situations where consumer behavior changes dramatically once a price reaches a certain level, leading to discontinuous or 'kinked' demand curves. This can manifest as sudden jumps in the quantity demanded, such as buying an entire stock once the price hits a particular low level.

Law of Demand

The law of demand is the economic principle that states that as the price of a good or service falls, the quantity demanded generally increases, and vice versa, ceteris paribus. This inverse relationship is a cornerstone of microeconomic theory and is the starting point for understanding consumer behavior and market demand curves.

Reservation Price

A reservation price is the maximum price a consumer is willing to pay for a good or the minimum price below which the consumer will not purchase the good at all. It explains why a person might refuse to buy something even when offered for free, as personal valuation does not justify consumption.

Income and Substitution Effects

Income and substitution effects describe the changes in consumption patterns that occur when a consumer's income changes or when the relative prices of goods shift. A decrease in disposable income may cause consumers to alter their consumption habits, substituting relatively cheaper goods for more expensive ones and affecting both the demand and supply equilibria in related markets.

Transcript

00:01 Demand quantity demanded price and even supply now first coming to the first point it says that i would never buy a milis iris album you couldn't even give me one for nothing now in this case what this situation means that the demand curve will be a vertical line so this is the demand curve and this is the quantity of milisirus album and this is the price of the album so here the demand curve will be a vertical line so we can label it also so it will be a this is the dd curve and it is a vertical line.

00:35 The quantity demanded will be zero irrespective of the changes in the price.

00:40 So whatever the prices may increase or decrease, the quantity of the millis -sr -album will remain zero.

00:46 This happens because demand curve is a vertical line.

00:49 Next is i generally buy a bit more coffee as price falls, but once the price falls to dollar per pound, i will buy out the entire stock of the supermarket.

00:58 Now, the person says that as the price falls, he will buy more coffee.

01:07 So this is as per law of demand.

01:10 So law of demand states that states that with the decrease in the price, the quantity demanded increases and with the increase in the price, the quantity demanded decreases.

01:20 So the person has a typical downward sloping demand curve till the price falls to dollar to.

01:26 This is denoted by this.

01:27 So as the price falls to dollar two, the demand curve becomes horizontal.

01:32 So this shows that the person at the price of two and below it the person will buy a large quantity of the orange juice so large quantity of the coffee so this is the quantity of coffee this is the price of coffee so as the price falls to two the demand curve turns to be horizontal and the person will buy large quantity of coffee but above that price that is above the price is of dollar two the demand curve is a typical downward sloping so following the law of demand so what we can say part c, part c says that i spend more on orange juice even as the price rises.

02:11 Thus, this means violating law of demand.

02:13 Now, what does law of demand states? law of demand states that other things being constant as the price of a good or services, service rises.

02:23 The quantity demanded of that particular good or service will fall.

02:26 And also as the price of a good or service decreases, the quantity demanded for that good or service will increase.

02:33 So this is the law of demand.

02:35 Now in this case what this is that is the law of demand being violated.

02:40 So no, we can say necessarily the law of demand is not violated...

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