Category: Economics for Business: Ch 08
In the article below Tim Harford (the Undercover Economist) looks at rationality in the purchase of cigarettes. He consider whether healthy and happy smokers are the same thing and the extent to which smokers would be happier if cigarettes were more expensive.
Why smokers are happier when cigarettes cost more MSN Slate (17/5/08)
Questions
| 1. |
Identify the principal factors that determine the level of demand for cigarettes. |
| 2. |
Given the factors identified in part (a), discuss the likely value of the price elasticity of demand for cigarettes. |
| 3. |
Discuss the extent to which higher cigarette prices would make smokers happier. |
Increasing numbers of firms are offering goods to consumers for free. Chris Anderson, the editor of Wired magazine, has developed a thesis called freeconomics which postulates that this trend will increase and that firms that don’t join in will go to the wall. “As much as we complain about how expensive things are getting, we’re surrounded by forces that are making them cheaper,” Anderson wrote in a recent article.
The big giveaway Guardian (6/5/08)
Questions
| 1. |
Explain what is meant by the term ‘freeconomics’. |
| 2. |
How can firms afford to make goods and services available for free? |
| 3. |
“Anderson’s idea is that the internet, by reducing marginal costs, encourages businesses to make their money by offering free goods or services to an extent we have not witnessed before”. Discuss the extent to which doing business over the internet reduces marginal costs. |
Researchers at the California Institute of Technology have shown that a person’s enjoyment of wine is heightened if they are told that the wine is an expensive one. So what are the main factors determining the demand for wine? Is it really the taste or is it simply the expectation resulting from the price?
Raising a glass to pricey wine BBC News Online (14/1/08)
High price makes wine taste better Times Online (13/2/08)
Why expensive wine tastes the best Metro (13/2/08)
Questions
| 1. |
What are the main factors determining the demand for wine? Assess the relative importance of each of these factors in the overall level of demand. |
| 2. |
Analyse how utility theory can help to explain the level of demand for more expensive wine.
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| 3. |
How would marginal utility and market demand be affected by the knowledge that bottle of wine is a relatively expensive one? |