Final answer:
The student's question involves the law of demand, where a higher price of a product—specifically a virtual reality headset—results in lower quantity demanded. Realistic prices may result in precise and complex spending amounts, and the introduction of a price ceiling in the market, such as on a new drug, alters the equilibrium and surpluses.
Step-by-step explanation:
The student's question involves understanding how changes in price can affect the quantity of consumer sales. Suppose that during the past year, the price of a virtual reality headset rose from $4,100 to $4,550. During the same time period, consumer sales decreased from 420,000 to 313,000 headsets. The relationship between price and quantity demanded is an example of the law of demand, which states that, ceteris paribus, as the price of a product increases, the quantity demanded will decrease, and vice versa.
This concept can also be extended to more complex scenarios. For instance, if variations of products were much longer, and we used more realistic prices, the total quantity spent over a year might be some messy-looking number like $17,147.51 or $27,654.92. These figures illustrate that calculating consumer spending and the total market size can involve dealing with non-rounded, precise amounts.
Furthermore, the rise in cost of living is calculated as the percentage increase, which is similar to calculating the percentage change in price. For instance, a rise in cost of living from $2,120 to $2,244,2120 would be calculated as (22442120) / 2120 = 0.0585, equating to a 5.85% increase. This is relevant to considering how price changes of goods and services affect the overall economy.
Additionally, the case involving a new drug for treating back pain and the imposition of a price ceiling by the government illustrates economic principles like consumer surplus, producer surplus, and market equilibrium. Without a price ceiling, the equilibrium price would be $600 per month and 20,000 people would use the drug, showing a balance between supply and demand. With a price ceiling set at $400, only 15,000 units would be produced due to the lower price, creating a shortage and affecting both consumer and producer surplus.