Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Three people have the following individual demand schedules for Count Chocula cereal that show how many boxes each would purchase monthly at different prices:$$\begin{array}{cccc} \text { Price } & \text { Person 1 } & \text { Person 2 } & \text { Person 3 } \\\ \hline \$ 5.00 & 0 & 1 & 2 \\ \$ 4.50 & 0 & 2 & 3 \\ \$ 4.00 & 0 & 3 & 4 \\ \$ 3.50 & 1 & 3 & 5 \end{array}$$ a. What is the market demand schedule for this cereal? (Assume that these three people are the only buyers.) Draw the market demand curve. b. Why might the three people have different demand schedules?

Short Answer

Expert verified
a. The market demand schedule is as follows: At \$5.00, it's 3 boxes (0+1+2); at \$4.50, it's 5 boxes (0+2+3); at \$4.00, it's 7 boxes (0+3+4); and at \$3.50, it's 9 boxes (1+3+5). \n\n b. Three people might have different demand schedules due to differences in their incomes, tastes, and preferences among others.

Step by step solution

01

Understand the Individual Demand Schedules

The given table shows how many boxes of cereal each person is willing to buy at different price levels. For example, at \$5.00, Person 1 would buy 0 boxes, Person 2 would buy 1 box, and Person 3 would buy 2 boxes. As price decreases, the number of boxes they are willing to buy increases.
02

Constructing the Market Demand Schedule

The market demand schedule for the cereal can be obtained by adding the number of boxes that each person will buy at every price. At \$5.00, the total quantity demanded (sum of quantities Person 1, Person 2 and Person 3 would buy) equals to 3 boxes. Similarly, summarizing demands for all prices will give the market demand schedule.
03

Explaining Different Demand Schedules

Different demand schedules can be influenced by different incomes, tastes, and preferences among consumers. For example, Person 1 may have different taste or income level compared to Person 2 and Person 3 which affect the quantity they're willing to buy at a different price.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

Key Concepts

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

Individual Demand Schedules
Understanding individual demand schedules is essential for grasping broader economic concepts like market demand. These schedules illustrate how much of a product a single consumer will buy at different prices. In our exercise, we saw three different people with varying appetites for Count Chocula cereal based on the price.

Person 1 didn't want any boxes at higher prices but showed interest as the price dropped. Person 2 and Person 3 were willing to buy more even at higher prices, their purchase quantity increased as the price dropped. This variance is tied to the idea that each individual's willingness to pay is affected by their personal valuation of the product, which stems from unique budget constraints, needs, and desires.

For example, consider Person 2's willingness to buy one box at \(5.00, increasing to two boxes at \)4.50. This individual demand schedule forms a cornerstone for market analysis. By analyzing such schedules across many individuals, companies can predict how changes in price might affect the overall quantity sold of their product.
Demand Curve
A demand curve graphically represents the relationship between the price of a product and the quantity of the product that consumers are willing and able to purchase. It's a fundamental tool in economics for visualizing consumer behavior.

In our exercise, each person's willingness to buy Count Chocula cereal at different prices can be plotted to form individual demand curves. Typically, these curves slope downward from left to right, reflecting the law of demand which states that, ceteris paribus, as the price decreases, the quantity demanded increases.

The market demand curve, which we derive by summing the individual quantities demanded at each price point across all consumers, provides us with a comprehensive picture of how the entire market will react to price changes. It's critically important for businesses when setting prices, predicting sales, and planning production levels.
Consumer Preferences
Consumer preferences significantly influence purchasing behavior and are a central reason why different people may have distinct individual demand schedules. These preferences can include taste, health considerations, brand loyalty, or even experiences associated with a product.

In the supplied exercise, differing preferences could explain why Person 1 was less inclined to purchase Count Chocula cereal at any price point compared to Persons 2 and 3. Personal preferences are complex and can be shaped by cultural, social, and psychological factors. They determine not only if a consumer will buy a product but also how much of it they will consume over a given time period.

Understanding consumer preferences gives businesses invaluable insights into product design, marketing strategies, and price optimization. This knowledge ensures that companies can better satisfy their customers and ultimately drive more sales.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

[Uses the Indifference Curve Approach] a. Draw a budget line for Cameron, who has a monthly income of \(\$ 100 .\) Assume that he buys steak and potatoes, and that steak costs \(\$ 10\) per pound and potatoes cost \(\$ 2\) per pound. Add an indifference curve for Cameron that is tangent to his budget line at the combination of 5 pounds of steak and 25 pounds of potatoes. b. Draw a new budget line for Cameron, if his monthly income falls to \(\$ 80 .\) Assume that potatoes are an inferior good to Cameron. Draw a new indifference curve tangent to his new budget constraint that reflects this inferiority. What will happen to Cameron's potato consumption? What will happen to his steak consumption?

[Uses the Marginal Utility Approach] Now go back to the original assumptions of problem 1 (novels cost \(\$ 8,\) hamburgers cost \(\$ 6,\) and income is \(\$ 120\) ). Suppose that Parvez is spending \(\$ 120\) monthly on paperback novels and hamburgers. For novels, \(M U / P=5 ;\) for hamburgers, \(M U / P=4\) Is he maximizing his utility? If not, should he consume (1) more novels and fewer hamburgers; or (2) more hamburgers and fewer novels? Explain briefly.

When an economy is experiencing inflation, the prices of most goods and services are rising but at different rates. Imagine a simpler inflationary situation in which all prices, and all wages and incomes, are rising at the same rate, say 5 percent per year. What would happen to consumer choices in such a situation? (Hint: Think about the budget line.)

[Uses the Indifference Curve Approach] a. Draw a budget line for Rafaella, who has a weekly income of \(\$ 30 .\) Assume that she buys chicken and eggs, and that chicken costs \(\$ 5\) per pound while eggs cost \(\$ 1\) each. Add an indifference curve for Rafaella that is tangent to her budget line at the combination of 4 pounds of chicken and 10 eggs. 1 b. Draw a new budget line for Rafaella, if the price of chicken falls to \(\$ 3\) per pound. Assume that \(\mathrm{Ra}\) faella views chicken and eggs as substitutes. What will happen to her chicken consumption? What will happen to her egg consumption?

Which of the following descriptions of consumer behavior violates the assumption of rational preferences? Explain briefly. a. Joseph is confused: He doesn't know whether he'd prefer to take a job now or go to college full-time. b. Brenda likes mustard on her pasta, in spite of the fact that pasta is not meant to be eaten with mustard. c. Brewster says, "I'd rather see an action movie than a romantic comedy, and I'd rather see a romantic comedy than a foreign film. But given the choice, I think I'd rather see a foreign film than an action movie."

See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free