Answered: Ayana is pitching an idea for a startup…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter20: Consumer Choice: Maximizing Utility And Behavioral Economics

Section: Chapter Questions

Problem 1QP

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Question

Ayana is pitching an idea for a startup company that makes and sells solar-powered phonechargers (C). Her market research has found that consumer demand for this product can beexpressed as a function of the price of the charger itself (PC), the price of phones (PF), andthe consmer’s income (I). Consumer demand can be described by the function

C(PC, PF, I) =(i−10PC)/ (PF)

Suppose her chargers come in all different capacities to meet any quantity demanded, so youdon’t need to worry about restricting C to whole numbers for this problem.

(a) Does this product satisfy the law of demand?Explain.

Expert Solution

Step 1

Let us understand this, with associating values in the equation,

Let the income (I) be 1000;

Let PC be 20;

and PF be 40;

then, the demand will be:

$C = \frac{1000 - 200}{40} = \frac{800}{40} C = 20 u n i t s$

Now, let the price of charges rise to 30 with the price of phone and income remaining constant; then, the demand will be:

$C = \frac{1000 - 300}{40} = \frac{700}{40} C = 17.5 u n i t s$

Similarly, now let the price pf the phone increase with the price of chargers and income remaining constant; then, the demand will be:

$C = \frac{1000 - 200}{50} = \frac{800}{50} C = 16 u n i t s$

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