Principles of Economics - The Demand Schedule

Running head: PRINCIPLES OF ECONOMICS
PRINCIPLES OF ECONOMICS
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Table of Contents
Answer to Question: 1.....................................................................................................................3
Answer to Question: 2.....................................................................................................................4
Answer to Question: 3.....................................................................................................................7
Reference List..................................................................................................................................9

Answer to Question: 1
Part A
The demand schedule is a table which shows the quantity demanded of a product at each
level of price. Demand schedule can be plotted in several ways such as line or chart. The line
chat is must effective for the economic analysis which helps to understand the value of the
product at each price level. It shows the number of goods to be bought by consumers at some
level. Price and quantity demanded are inversely related (Catalini et al. 2019) The law of
demand says that an increase in price leads to a fall in the amount of output demanded of the
product. When the price of the good goes up, consumers lower their demand which leads to a fall
in quantity demanded. A fall in price raises consumer demand as they can buy more goods with
same of money.
Figure 1: Law of curve, drawn from demand schedule

Source: as created by the author
Using the demand schedule given in the question, the demand curve has been plotted
which has a downslope in Figure 1. The downward slope of the demand curve relates the
relationship between price and demand quantity in the orange line. The price is represented in the
Y-axis and quantity is represented along the X-axis.
Part B
The demand of Libra is affected by the price of the Libra with respect to various factors
that can affect the price of the good in the overall market. If Facebook charges a high price for
Libra, consumers will not use it. They will use other transaction services that has much lower
price and risks. However, the supply of goods are positively related to price such that rise in
price enables suppliers to produce more amount of good (Fernández-Villaverde and Sanches
2019). Facebook needs to actively invest in key technologies that can effectively handle user
risks, systematic risks, money laundering and other data services that can effectively increase the
price and lower consumer demand.
Answer to Question: 2
Part A
The amount of change in quantity demanded with respect to price is dependent on the
elasticity of the good. A good with little or no substitute has inelastic demand such that a change
in price does not change the quantity demanded (Taskinsoy 2019). Elastic demand curve ensures
that a small change in price leads to a greater change in quantity demanded. Figure1 shows an
elastic demand curve as it is flatter ensuring the fact that a price change will cause consumers to

change their demand for substitute goods like Binance Coin and Bytecoin, Bitcoin Gold
respectively.
Figure 2: The change in the slope of demand curve after change in price
Source: (As created by author)
If Facebook decides to change the price of Libra, then the quantity demanded will get changed.
The demand curve becomes less elastic as shown in Figure 2. The change in elasticity value has
been presented in Figure2. When elasticity value is equal to 1, it is unit elastic. When elasticity
value is lesser than 1, it is inelastic, whereas elasticity value greater than 1 denotes that it is
elastic.
Table 1: Change in elasticity value with respect rice change

Source: (As created by author)
At price level 6 dollars, elasticity value s 1, denoting that it is unit elastic such that price
and quantity demanded changes proportionately as shown in Table 1 and Figure 2 respectively.
Elasticity value goes increasing, as price goes above 6 dollars such that people will not prefer the
good at high price causing a fall in quantity demanded. Demand becomes inelastic as at prices
below 6 dollars.
Part B
The elasticity of demand is determined by several factors that influences consumer
demand over price change like nature of commodity, availability of substitute goods,
complementary goods, and proportion of income spent on the good, price level, width of the
product and the time period.
Elasticity is determined by the nature of the goods such that necessary goods have
inelastic demand and luxury goods have elastic demand. Libra will be considered as a luxury
good until people have proper knowledge about it which is denoted by time frame. In the long
run, prices might go down such that it becomes a necessary item (Taskinsoy 2019). However, in
short run, people cannot shift their preference. Substitute goods are those which can be used in
place of one good that is either identical or generates similar satisfaction. When a good has
various available substitutes, then a higher price will shift consumer preference towards more
substitute products that is available at a lower price (Mayer 2019). There are many digital
currencies and electronic cash system that facilitates easy money transfer which can be used in
place of Facebook’s Libra. As a result, a price rise will cause consumers to shift their demand.

Complements are those that is used with the item such that as fall in price of
complementary goods raises demand by greater amounts. Proportion of total expenditure
influences demand such that a higher proportion of income spent on the good will raise the
elasticity of it (GÜLLER 2019). Libra is not a regular good and thus demand will be demand will
be determined by several factors like political uncertainty, regulatory moves and interest rates. A
higher interest rate raises elasticity and vice versa. With greater political conflicts, the elasticity
of such services go down as people does not invest in such situations.
Answer to Question: 3
Part A
Marginal utility is defined the satisfaction that is generated from one additional quantity
consumption of the good which is estimated by the difference in total utility by the difference in
units. The value of marginal utility goes down as the amount of consumption goes up because it
lowers consumer’s satisfaction (Brühl 2019). Marginal utility is affected by the quantity of
variable input available such that as the proportion of expenditure goes up, the addition utility
goes down. Over the course of time, more digital currencies will come in the system that can
lower the preference for banking services.
The indifference preference curve denotes the combination of two goods that generates
equal utility or satisfaction. Indifference curve has a downward sloping curve that is convex to
the origin. This compares the marginal utility of goods that are perfect substituites of each other
by measuring the marginal level of substitution (Schmeling 2019). Consumers face a trade-off
between the two goods and consumption of one good goes up as one moves up the IC curve and
vice-verse. A technological advancement pushes IC curve upwards because the price of good

goes up which raises the demand for them. It shows how can individual ranks his choice
according to his or preference when provided with various combinations of gods to choose from.
Consumers has fixed budget constraints and their preference is denoted at a point where budget
constraint is tangential to the IC curve.
Part B
Behavioral economics is the study of cultural, social, emotional, cognitive and
psychological factors that affect consumer choice and preference of the goods. It analysis how
consumers dente their demand for a product in the market and accordingly services are provided
to them. It enables marketers to denote the supply of the product in the market and accordingly
they can determine the price of the product. They use the method of Heuristics which provides
good solution to the complex problems within a limited time or deadline. Digital technology has
affected the performance of the other industries such as banking, retail, finance, media and
transportation and heuristics uses these parameters to effectively determine demand for digital
services. This approach is used by financial professors and investors to speed up the investment
decisions.

Reference List
Brühl, V., 2019. LIBRA–a differentiated view on Facebook’s virtual currency project.
Catalini, C., Gratry, O., Hou, J.M., Parasuraman, S. and Wernerfelt, N., 2019. The Libra
Reserve. Libra White Paper.
Fernández-Villaverde, J. and Sanches, D., 2019. Can currency competition work?. Journal of
Monetary Economics, 106, pp.1-15.
GÜLLER, A., 2019. LIBRA: THE NEW WORLD CURRENCY?. Journal of International
Social Research, 12(65).
Mayer, T., 2019. A digital Euro to compete with Libra. The Economists’ Voice, 16(1).
Schmeling, M., 2019. What is Libra? Understanding Facebook's currency (No. 76). SAFE
Policy Letter.
Taskinsoy, J., 2019. Facebook’s Libra: Big Bang or Big Crunch? A Technical Perspective and
Challenges for Cryptocurrencies. A Technical Perspective and Challenges for Cryptocurrencies
(August 29, 2019).
Taskinsoy, J., 2019. Is Facebook’s Libra Project Already a Miscarriage?. Available at SSRN
3437857.