Some people seem to believe that there are goods for which the law of demand is irrelevant, goods that people just “can’t do without.” Why do economists believe that the law of demand applies to all goods.
Explain what would have to happen to each of the following in order for the demand for widgets to go up: (a) Consumer incomes (b) Prices of other goods (c) Expectations concerning future prices.
(B) You hire a consultant to estimate the elasticity of demand for widgets, the product that your company produces and sells. When you receive the report it indicates that the elasticity of demand for widgets is -0.6. Briefly explain what that means.
(2) What are its implications for your firm’s pricing decision?
(C) For “standard” goods, the consumption of a good today has no effect on future consumption. But the authors suggest that this is not true of all goods. Briefly explain the distinction between a “lagged-demand” and a “network” good.
(2) If the widgets are a “lagged-demand” good, how would it affect your firm’s pricingstrategy. The field known as “behavioral economics” branched out from traditional neoclassical economics beginning in the 1970s.
(1) Explain the theoretical basis for the distinction between traditional economics on the one hand and behavioral economics on the other.
(2) Based on your knowledge of economic theory (in addition to this class you must also have completed a course in microeconomic principles) and what you have learned about behavioral economics, explain whether or not you think this “new” branch of economics is justified.
(B) Explain and evaluate two important policy prescriptions that have come out of the “behavioral economics” movement.