Module 1 – SLP
SUPPLY AND DEMAND
For the SLP this session, come up with an idea for a business you would like to start someday. This should be a business in an industry that you are familiar with and can find a lot of information about. This could be a type of business that you are currently working for or have worked for in the past, or a type of business that you are a frequent customer of. Finally – since you will have to make estimates about costs of starting up the business or what type of price you can charge, it is best to keep your business idea relatively simple.
For this first SLP, discuss your business idea and do some initial research on what prices your potential competitors in your home town are charging. More specifically, write a three-page paper discussing the following issues:
- What business do you want to start, and why? Explain your personal connection to this type of business and discuss sources of information about this business that you plan to use for your SLP.
- What prices are these businesses in your chosen industry charging? Try to get at least ten examples of businesses and the prices they are charging, and create a table that lists the prices and any other relevant information, such as whether the product they sell is high-end quality or lower-end quality.
- Do you notice a large range of prices that businesses are charging for the service or product? If so, what factors do you think explain the range of prices? Is it the quality of the product or service, location of the business, amount of advertising done by each business, other?
Based on your answers to Questions 1 and 2 above, do you think your product or service will have elastic or inelastic demand? You don’t have to do any calculations since you probably won’t have access to sales data on the businesses you are looking at – but based on the range of prices, you should be able to get an idea about how sensitive consumers of your product or service will be to changes in price. In addition to your own
Module 1 – Background
SUPPLY AND DEMAND
These videos will give you the basics of both the demand and supply curves:
Tabarrok, A. & Cowen, T. [Marginal Revolution University]. (2015, January 2). The demand curve [Video file]. Retrieved from https://www.youtube.com/watch?v=kUPm2tMCbGE
Tabarrok, A. & Cowen, T. [Marginal Revolution University]. (2015, January 2). The supply curve [Video file]. Retrieved from https://www.youtube.com/watch?v=nKvrbOq1OfI
Now, go slightly deeper into these topics and read Chapters 3 and 5 from the Taylor (2014) below. These chapters provide a detailed introduction into demand, supply, and elasticity. Pay special attention to the “Self-Check Questions” at the end of each section, which include the solutions. Before submitting the Case Assignment, it is best to test your knowledge of the concepts with the practice questions.
|Taylor, T. (2014) Principles of Microeconomics. OpenStax College. http://cnx.org/contents /6i8iXmBj@10.174:UfIHC0qu@6/Introduction-to-Demand-and-Sup|
The quantitative problems in the Case for this module require you to work with demand equations. To better understand this concept, please read through Section 3.4, Modeling Consumer Demand, in the following book:
|Stengel, D. (2012). Managerial Economics Principles. Flat World Education. http://saylordotorg.github.io/text_principles-of-managerial-economics/|
research about prices in your home town, cite some of the required background reading on elasticity to justify your answer.