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Intro - What trendy items have you seen that have come and gone in society? What caused them to arise? What caused them to disappear? Quantities of a particular good or service that people are willing and able to buy at different possible prices. Consumers buy more of a good when its price decreases and less of a good when its price increases. What caused this shift in demand? Is this reliable if you are starting a business? How can we better guarantee a successful business? Changes in Income (the income effect) 1. 1. Examples? Prices or availability of substitutes (The substitution effect) 2. A substitute is a good/service that can be used in place of another. Changes in the number of buyers. Changes in preference, tastes, and technology. What are some products in the world that humanity absolutely NEEDS to survive? Elasticity of demand is a measure of how consumers react to a change in price. Demand for a good that consumers will continue to buy despite a price increase is inelastic. Demand for a good that is very sensitive to changes in price is elastic. Several different factors can affect the elasticity of demand for a certain good. 1. Availability of Substitutes 2. Relative Importance 3. Necessities v. Luxuries 4. Change over time. The elasticity of demand determines how a change in prices will affect a firm’s total revenue or income. A company’s total revenue is the total amount of money the company receives from selling its goods or services. Firms need to be aware of the elasticity of demand for the good or service they are providing. If a good has an elastic demand, raising prices may actually decrease the firm’s total revenue. 1. What does elasticity of demand measure? (a) an increase in the quantity available (b) a decrease in the quantity demanded (c) how much buyers will cut back or increase their demand when prices rise or fall (d) the amount of time consumers need to change their demand for a good (c) how much buyers will cut back or increase their demand when prices rise or fall 2. What effect does the availability of many substitute goods have on the elasticity of demand for a good? (a) demand is elastic (b) demand is inelastic (c) demand is plastic (d) the availability of substitutes does not have an effect (a) demand is elastic Work on Unit 2 Assignments Sheet Extra credit if complete with portion 1 by This Friday.