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Chapter 3: Problem 5

Let's assume that each person in the United States consumes an average of 37 gallons of soft drinks (nondiet) at an average price of \(\$ 2\) per gallon and that the U.S. population is 294 million. At a price of \(\$ 1.50\) per gallon, each individual consumer would demand 50 gallons of soft drinks. From this information about the individual demand schedule, calculate the market demand schedule for soft drinks for the prices of \(\$ 1.50\) and \(\$ 2\) per gallon.

Short Answer

Expert verified
Answer: At the price of \(\$1.50\) per gallon, the quantity demanded is 14,700,000,000 gallons. At the price of \(\$2\) per gallon, the quantity demanded is 10,878,000,000 gallons.

Step by step solution

01

Calculate the total amount of soft drinks consumed by each person at the price of \(\$2\) per gallon

According to the problem, each person consumes an average of 37 gallons of soft drinks at a price of \(\$2\) per gallon.
02

Calculate the total consumption of soft drinks by the entire population at the price of \(\$2\) per gallon

Since there are 294 million people in the United States, the total consumption of soft drinks at a price of \(\$2\) per gallon can be calculated by multiplying the average consumption per person by the population. Total consumption at \(\$2\) = (Average consumption at \(\$2\) per person) 脳 (Population) Total consumption at \(\$2\) = (37 gallons) 脳 (294,000,000) Total consumption at \(\$2\) = 10,878,000,000 gallons
03

Calculate the total amount of soft drinks consumed by each person at the price of \(\$1.50\) per gallon

The problem states that each individual consumer would demand 50 gallons of soft drinks when the price is \(\$1.50\) per gallon.
04

Calculate the total consumption of soft drinks by the entire population at the price of \(\$1.50\) per gallon

Similarly, we'll multiply the average consumption per person at the \(\$1.50\) price point by the population. Total consumption at \(\$1.50\) = (Average consumption at \(\$1.50\) per person) 脳 (Population) Total consumption at \(\$1.50\) = (50 gallons) 脳 (294,000,000) Total consumption at \(\$1.50\) = 14,700,000,000 gallons
05

Create the market demand schedule

Now we can create the market demand schedule by listing the quantities demanded at each price. Market Demand Schedule: | Price per Gallon | Quantity Demanded (Gallons) | |------------------|-------------------------------| | \(\$2\) | 10,878,000,000 | | \(\$1.50\) | 14,700,000,000 |

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Understanding the Individual Demand Schedule
To grasp the concept of an individual demand schedule, think of it as a roadmap that shows the quantity of a good a person is willing to buy at various prices. In our example, we're looking at the consumption of soft drinks.
At a price of \( \\(2 \) per gallon, each person consumes 37 gallons on average. If the price drops to \( \\)1.50 \) per gallon, the individual demand increases to 50 gallons.
This illustrates how people typically consume more of a product when prices are lower. The individual demand schedule is an essential tool for businesses and economists because:
  • It helps predict consumer purchasing behavior at different price points.
  • It aids in estimating how changes in price can affect overall sales for a single consumer.
Understanding this schedule on an individual level is the first step toward pinning down broader market demand.
Diving Into Price Elasticity of Demand
Price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in price. It is a core concept that helps in understanding consumer behavior in response to price fluctuations.
In simple terms, if a small change in price leads to a large change in the quantity demanded, we say the demand is elastic. Conversely, if the quantity demanded changes very little with a price change, demand is inelastic.
For our soft drink scenario:
  • When the price drops from \( \\(2 \) to \( \\)1.50 \), each individual's consumption increases from 37 gallons to 50 gallons.
  • This change demonstrates that the demand for soft drinks might be relatively elastic since a drop in price results in significantly higher consumption.
Price elasticity helps companies decide how to price their products and forecast how pricing adjustments can impact overall demand.
Exploring Consumer Behavior
Consumer behavior looks at the decisions individuals make regarding the purchase of goods and services. It's influenced by factors like preferences, income, price changes, and the availability of substitutes.
In the exercise, the change in consumption of soft drinks when the price changes reflects consumer behavior.
Several key insights can be drawn about consumer behavior in this context:
  • Consumers tend to buy more when prices drop, demonstrating price-dependent purchasing behavior.
  • The increase from 37 to 50 gallons indicates soft drinks are highly desirable at a lower price.
  • External factors such as advertising, seasonal demand, or changes in consumer income could also impact demand.
By analyzing consumer behavior, businesses can tailor marketing strategies and adjust pricing to better meet their customer's needs and maximize sales.

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Most popular questions from this chapter

Aaron Hank is a star hitter for the Bay City baseball team. He is close to breaking the major league record for home runs hit during one season, and it is widely anticipated that in the next game he will break that record. As a result, tickets for the team's next game have been a hot commodity. But today it is announced that, due to a knee injury, he will not in fact play in the team's next game. \Lambdassume that season ticket holders are able to resell their tickets if they wish. Use supply and demand diagrams to explain your answers to parts a and \(b\). a. Show the case in which this announcement results in a lower equilibrium price and a lower equilibrium quantity than before the announcement. b. Show the case in which this announcement results in a lower equilibrium price and a higher equilibrium quantity than before the announcement. c. What accounts for whether case a or case b occurs? d. Suppose that a scalper had secretly learned before the announcement that Aaron Hank would not play in the next game. What actions do you think he would take?

The accompanying table gives the annual U.S. demand and supply schedules for pickup trucks. $$ \begin{array}{c|c|c} & \begin{array}{c} \text { Quantity of } \\ \text { trucks demanded } \\ \text { (millions) } \end{array} & \begin{array}{c} \text { Quantity of } \\ \text { trucks supplied } \\ \text { (millions) } \end{array} \\ \$ 20,000 & 20 & 14 \\ 25,000 & 18 & 15 \\ 30,000 & 16 & 16 \\ 35,000 & 14 & 17 \\ 40,000 & 12 & 18 \end{array} $$ a. Plot the demand and supply curves using these schedules. Indicate the equilibrium price and quantity on your diagram. b. Suppose the tires used on pickup trucks are found to be defective. What would you expect to happen in the market for pickup trucks? Show this on your diagram. c Suppose that the U.S. Department of Transportation imposes costly regulations on manufacturers that cause them to reduce supply by one-third at any given price. Calculate and plot the new supply schedule and indicate the new equilibrium price and quantity on your diagram.

Find the flaws in reasoning in the following statements, paying particular attention to the distinction between shifts of and movements along the supply and demand curves. Draw a diagram to illustrate what actually happens in each situation. a. "A technological innovation that lowers the cost of producing a good might seem at first to result in a reduction in the price of the good to consumers. But a fall in price will increase demand for the good, and higher demand will send the price up again. It is not certain, therefore, that an innovation will really reduce price in the end." b. "A study shows that eating a clove of garlic a day can help prevent heart disease, causing many consumers to demand more garlic. This increase in demand results in a rise in the price of garlic. Consumers, seeing that the price of garlic has gone up, reduce their demand for garlic. This causes the demand for garlic to decrease and the price of garlic to fall. Therefore, the ultimate effect of the study on the price of garlic is uncertain."

Suppose that the supply schedule of Maine lobsters is as follows: $$ \begin{array}{c|c} \begin{array}{c} \text { Price of lobster } \\ \text { (per pound) } \end{array} & \begin{array}{c} \text { Quantity of lobster } \\ \text { supplied (pounds) } \end{array} \\ \$ 25 & 800 \\ 20 & 700 \\ 15 & 600 \\ 10 & 500 \\ 5 & 400 \end{array} $$ Suppose that Maine lobsters can be sold only in the United States. The U.S. demand schedule for Maine lobsters is as follows: $$ \begin{array}{c|c} \begin{array}{c} \text { Price of lobster } \\ \text { (per pound) } \end{array} & \begin{array}{c} \text { Quantity of lobster } \\ \text { demanded (pounds) } \end{array} \\ \$ 25 & 200 \\ 20 & 400 \\ 15 & 600 \\ 10 & 800 \\ 5 & 1,000 \end{array} $$ a. Draw the demand curve and the supply curve for Maine lobsters. What are the equilibrium price and quantity of lobsters? Now suppose that Maine lobsters can be sold in France. The French demand schedule for Maine lobsters is as follows: $$ \begin{array}{c|c} \begin{array}{c} \text { Price of lobster } \\ \text { (per pound) } \end{array} & \begin{array}{c} \text { Quantity of lobster } \\ \text { supplied (pounds) } \end{array} \\ \$ 25 & 100 \\ 20 & 300 \\ 15 & 500 \\ 10 & 700 \\ 5 & 900 \end{array} $$ b. What is the demand schedule for Maine lobsters now that French consumers can also buy them? Draw a supply and demand diagram that illustrates the new equilibrium price and quantity of lobsters. What will happen to the price at which fishermen can sell lobster? What will happen to the price paid by U.S. consumers? What will happen to the quantity consumed by U.S. consumers?

This year, the small town of Middling experiences a sudden doubling of the birth rate. After three years, the birth rate returns to normal. Use a diagram to illustrate the effect of these events on the following. a. The market for an hour of babysitting services in Middling this year b. The market for an hour of babysitting services 14 years into the future, after the birth rate has returned to normal, by which time children born today are old enough to work as babysitters c. The market for an hour of babysitting services 30 years into the future, when children born today are likely to be having children of their own
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