ECON102: SUPPLY AND DEMAND THE BACKGROUND OF THE QUESTION IS STUPID, BUT IT\'S N
ID: 1093060 • Letter: E
Question
ECON102: SUPPLY AND DEMAND
THE BACKGROUND OF THE QUESTION IS STUPID, BUT IT'S NEEDED FOR THE QUESTION!!!
A student in a principles of economics course goes in to a coffee bar where she is scheduled to meet three classmates for a study session devoted to the market model of supply and demand. She orders her drink from the bar and sits down to join her classmates, who already have their drinks. The first guy says:"If this establishment lowered the price of their drinks the demand for them would increase." The second guy disagrees with the first guy and says, "If they lowered the price of drinks then only their quantity demanded would increase, but that lowering price, all other things equal, would not increase demand." The third guy counters, and insists that, "If the price of these drinks were to be lowered buy this outfit, demand would increase and supply would decrease." Our heroine wants to take the guy with the correct analysis home to her apartment to spend what she plans will be a very pleasant afternoon.
Which guy should she take home with her, that is, which guy did the correct analysis? Explain your reasoning fully. (Assume that the only relevant condition on her choice is correct analysis, that is, assume that all three guys are equally attractive and all are available for the afternoon.)
Explanation / Answer
Which guy should she take home with her, that is, which guy did the correct analysis? Explain your reasoning fully. (Assume that the only relevant condition on her choice is correct analysis, that is, assume that all three guys are equally attractive and all are available for the afternoon.)
Honestly, I do not think she should take any of the three guys home. None of them seem very smart to me and especially if they are sitting in a coffee shop engaging in the discussion. She should instead find a Gorgeous Geek.
The first guy says:"If this establishment lowered the price of their drinks the demand for them would increase."
This guy is making a reasonable assumption but not guaranteed to be right. A counter argument is to look at Starbucks. They keep raising their prices but people keep buying their coffee drinks because they are so good. So while the statement may be true, I do not think it is likely the case.
The second guy disagrees with the first guy and says, "If they lowered the price of drinks then only their quantity demanded would increase, but that lowering price, all other things equal, would not increase demand."
This guy to not go home with. He definetely does not seem to know what he is talking about. In the first sentence he says lowering price would increase demand but then in the second sentence says demand would not increase. This is a contradiction.
The third guy counters, and insists that, "If the price of these drinks were to be lowered buy this outfit, demand would increase and supply would decrease."
This guy is not a good option but might be the best of the three available. His assumption is that lower price will increase demand and lower supply. This could be true over the short term (first 2 - 3 weeks it happens) but not likely over the long term. Usually it works the opposite way. Coffee supply will drive the price up or down and affect demand some. Not the other way around where he is saying the price will affect the supply.
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