Microeconomics Assignment: Demand, Elasticity, and Analysis

This microeconomics assignment investigates the relationship between price and quantity demanded for tea, coffee, and health drinks. The study begins with a questionnaire administered to ten consumers to gather data on their purchasing behavior, followed by an analysis of the collected data, examining how changes in price influence demand for each product. The assignment then constructs market demand curves for each product based on the collected data and calculates both price elasticity and cross-price elasticity of demand using the midpoint formula. The findings suggest that the demand for all three goods is inelastic. The assignment concludes by highlighting the significance of elasticity in producers' pricing strategies and its impact on revenue generation. The appendix includes the raw data from the consumer survey and the calculations performed.

Running head: MICROECONOMICS
MICROECONOMICS
Name of the Student
Name of the University
Author’s Note

1MICROECONOMICS
Table of Contents
Introduction......................................................................................................................................2
Questionnaire about price and quantity demanded of the product..................................................2
Analysis of the data collected from the market about three products..............................................3
Market demand curve from the demand schedule of three products...............................................4
Price elasticity and cross-price elasticity of three products.............................................................7
Conclusion.......................................................................................................................................8
Appendix..........................................................................................................................................9
References......................................................................................................................................15

2MICROECONOMICS
Introduction
The aim of this assignment is to collect data about the prices as well as quantity
demanded of three products and evaluate it based on consumer’s perception. The study also
highlights on the market demand curve from the demand schedule of these three products.
Market demand refers to the series of different quantities of goods or service that the consumers
in the particular market are willing to buy collectively for series of prices per unit of good or
service, provided that other things remain constant (Hall and Lieberman 2012). This assignment
also focuses on the evaluation of both the price elasticity and the cross -price elasticity for all
these three products by using midpoint formula. The demand elasticity refers to sensitivity of
demand for product with respect to change in other variables that includes prices and income.
Questionnaire about price and quantity demanded of the product
The questionnaire has been prepared based on the information collected about the price and
quantity demanded of these three products by ten consumers. This questionnaire is given as
under:
 What is the price of the three products you bought?
 Will you purchase the same quantity of product if the price decreased by 10%?
 Will you switch to other products if the price increases by 10%?
 Will you purchase more quantity of product if its price decreases?
 Will you purchase less quantity of products if its price increases?

3MICROECONOMICS
Analysis of the data collected from the market about three products
The three products that these consumers select for purchasing it are tea, coffee and health
drinks. The prices at which ten consumers bought these three commodities are given in the
appendix. The data collected reflects that there is less variation in price of each product bought
by the ten consumers. In addition, the response collected from the consumers highlights that if
the price decreases by 10%, then some of the consumers will consume same quantity of health
drinks as it is a luxury product. However, most of the consumers will choose to buy more tea and
coffee if its price declines (Rader 2014). Some of the consumers also prefers to switch over to
other products if price of the good increases by 10%. Therefore, if the price of tea increases by
10%, then the consumer might switch over to purchase coffee and vice-versa. The main reason
behind this is that tea and coffee are considered as substitute products. Nevertheless, in case of
health drinks, the consumers might prefer to buy less health drinks if its price increases as it not a
necessity good. In addition, most of the consumers will tend to buy more quantities of preferred
products if its price falls (Nicholson and Snyder 2014). This means that consumers will prefer to
buy more quantity of tea and coffee rather than buying health drinks. Health drinks being luxury
good will not influence the decision of the consumers in buying more of it if its price declines.
Furthermore, the data collected from the respondents also reflects that the customers might
purchase less quantity of luxury goods such as health drinks if its price increases. Nevertheless,
the preference for purchase of tea and coffee might not change even though its price rises.
However, it can be expected that other consumers will increase the quantity by 20%, if the price
declines by 10%.

4MICROECONOMICS
Market demand curve from the demand schedule of three products
The market demand curve is drawn from the horizontal summation of individual demand
curve or demand schedules of the consumers in a particular market (Baumol and Blinder 2015).
The market demand curve for tea is drawn from the horizontal summation of individual
consumers demand schedule , which is shown below:
1 2 3 4 5 6 7 8 9 10 11
0
2
4
6
8
10
12
14
Individual Demand Curve
ConsumerA
Consumer B
ConsumerC
Consumer D
Consumer E
ConsumerF
Consumer G
Consumer H
Consumer I
Consumer J
Quantity
Price

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10 20 30 40 50 60 70 80 90 100
0
1
2
3
4
5
6
7
8
9
Market Demand Curve for Tea
Market Demand Curve
Quantity
Price
Figure 1: Market demand curve for Tea
The market demand curve for coffee is shown below:
0 2 4 6 8 10 12
0
1
2
3
4
5
6
Individual Demand curve
ConsumerA
ConsumerB
ConsumerC
ConsumerD
ConsumerE
ConsumerF
ConsumerG
ConsumerH
ConsumerI
ConsumerJ
Quantity
Price

6MICROECONOMICS
10 20 30 40 50 60 70 80
0
1
2
3
4
5
6
Market demand curve for Coffee
Market demand curve
Quantity
Price
Figure 2: Market demand curve for coffee
Similarly, the market demand curve for health drinks is shown below:
0 2 4 6 8 10 12
0
2
4
6
8
10
12
14
Individual Demand curve
Consumer A
Consumer B
Consumer C
Consumer D
Consumer E
Consumer F
Consumer G
Consumer G
Consumer H
Consumer I
Consumer J
Quantity
Price

7MICROECONOMICS
20 30 40 50 60 70 80 90
0
2
4
6
8
10
12
14
Market Demand Curve for Health Drinks
Market Demand Curve
Quantity
Price
Figure 3: Market demand curve for health drink
Price elasticity and cross-price elasticity of three products
Price elasticity of demand is defined as the responsiveness of quantity demanded with
respect to change in price for the specific good (Rios, McConnell and Brue 2013). If the price
elasticity of demand becomes less than one, the demand is said to be perfectly elastic. When the
value becomes equals to one, the demand is unitary elastic. Finally, if the price elasticity of
demand becomes greater than one, the demand becomes perfectly elastic. Cross price elasticity
of demand signifies the responsiveness of quantity demanded of a specific product with respect
to change in price of another product (Bauer 2014). In case of substitute good, the value becomes
positive as increase in price of one product leads to increase in demand for other product. On the
other hand, the value becomes negative in case of complementary product. In this case, the price
elasticity of demand and cross price elasticity of demand for these three products are estimated
by using mid-point formula. The midpoint formula for change in price is given as- Price new-
Price old/Price average and for the quantity demanded is given as – Qdnew- Qdold/ Quantity average.

8MICROECONOMICS
The price elasticity of demand and cross price elasticity of demand calculated for tea,
coffee and health drink are less than one, which indicates that the demand is inelastic for these
three goods (Mankiw 2014). This means that change in the product price leads to smaller change
in its quantity demanded. However, in this situation, the producers will try to increase the price
of these products for maximizing revenue.
Conclusion
The above assignment provides a view that several factors can cause change in price and
quantity demanded for a particular product. The market demand curve for a specific good also
depends on the change in its demand schedule. Elasticity of demand also has huge significance to
the producer as they sets the product price based on it. Therefore, if the demand for the product is
elastic, they strategize to reduce price for increasing sale. In case of inelastic demand, they try to
charge high price for the commodity for attaining larger revenue from sales.

9MICROECONOMICS
Appendix
Data collected from 10 consumers-
PRICE AT
WHICH
CONSUMERS
BOUGHT
THESE
THREE
PRODUCTS
CONSUMERS
PRICE OF HEALTH
DRINKS(Pounds)
PRICE OF
COFFEE
(Pounds)
PRICE OF TEA PER
KILOGRAM(Pounds
)
A 5 2 5
B 5.5 4 2
C 6 6 3
D 7 5 4
E 8 6 2.2
F 9 3 4.3
G 6 5.5 4
H 6.7 4.2 3
I 4 6.6 5
J 3 7.5 6
SAME
QUANTITY
OF PRODUCT
PURCAHSED
IF THE PRICE
OF THREE
PRODUCTS
DECREASED
BY 10%
CONSUMERS RESPONSE
A YES, Health Drinks
B NO, Tea
C NO, coffee
D YES, Health Drinks

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E NO, Tea
F NO, Coffee
G YES, Health Drinks
H NO, Tea
I YES, Health Drinks
J NO, Tea
SWITCH
OVER TO
OTHER
PRODUCTS IF
PRICE OF
PRODUCT
INCREASES
BY 10%
CONSUMERS RESPONSE
A
YES, (Coffee to
Tea)
B
YES (Tea to
coffee)
C YES (coffee to tea)
D
YES (Tea to
coffee)
E NO (Heath Drinks)
F NO (Heath Drinks)
G NO (Heath Drinks)
H
YES (Tea to
coffee)
I NO (Heath Drinks)
J NO (Heath Drinks)
PURCHASE
OF MORE
QUANTITY
OF
PRODUCTS IF
PRICE
DECREASES
CONSUMERS RESPONSE
A YES, Tea
B YES, coffee
C YES, coffee

11MICROECONOMICS
D NO, health drinks
E NO, health drinks
F YES, Tea
G NO, heath drinks
H YES,coffee
I NO, heath drinks
J YES, coffee
PURCHASE
OF LESS
QUANTITY
OF
PRODUCTS IF
ITS PRICE
INCREASES
CONSUMERS RESPONSE
A YES, Cold Drinks
B YES, Coffee
C NO, Tea
D NO, Tea
E YES, Cold Drinks
F NO, Tea
G NO, Tea
H YES, Coffee
I YES, Coffee
J NO, Tea
Price elasticity of demand and cross price elasticity of demand for tea, coffee and health drinks
Price elasticity
of demand for
Tea by using
mid point
formula
Price
Quantity
demanded for
10 consumers
4 73