Okay, we're all (economics student) must know about Econ 101, Principle of Economics. I assure we met supply and demand (S&D) for the first time on this class. I got A, as I remember, but facing these two questions I feel like an idiot:
Question 1: What would happen to demand for the tea, if there was a health scare regarding coffee?
and more though one,
Question 2: A survey shows that on average 100 people go to the movies when the price is $6 and 300 people go when the price is $9. Does this violate the laws of supply and demand?
Thank you Prof. Scott you awaking me from "A" mark illusion. Now, i realize how useful "other things hold equals". Yeah, S&D are complicated. Maybe I must consider to took Econ 101 again. Sigh
But, i hope you (reader) have a better answer than me.
Wednesday, July 29, 2009
S&D: Now, I feel stupid
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4 comments:
Before I read whole Scott's article my I answer is:
for,
Question 1: The quantity demanded of tea will increase, because falling price of coffee because of health scare means there are demand fall in coffee, so, public consumption will moving on the substitutes, in this case, tea. Demand for tea increase, so, supply will shifted than set tea price on higher level.
Question 2: I really have no idea to answer.huhu
and that "other things going equal" seems really happen extremely sparse..
maybe there should be another new "supply demand theory" that can be applied under "other things can going alterable" condition..=)
hehe
Question 1:Correct answer! but if, only if, tea is a perfect substitute for coffee. And, of course, if other things hold equal..hehe
Question 2: Your statement don't tell which variable affect what variable. What if I say, when movies demand increase from 100 to 300, price increase from 6 to 9. Does it violate S&D law?
And please remember that, in real world, price is just one of many factors that could affect quantity changing. Other things are not hold equal.
Yup..
Scott point out on question 1 that according to mankiw book the tea price must be lower too. Because when coffee price fall down it must be tea will do so. But Scott agree with my answer.
for question 2 it's about how collective data can mislead our logic. This example truly didn't break S&D. It because the data didn't explain all..you're right the price increase from 6 to 9 because demand pull (example on premiere show) so it is logic that price was higher.
thx om,
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