Question

Recently, Shandra purchased 5 movie DVDs and 12 three ring binders. What if the price of DVDs rose by $3 and the price of three ring binders declined by $2. With Shandra’s income unchanged and prices for other goods remaining the same, what actions would Shandra most likely take?

Answer 1

1. She'll purchase less quantity of movie DVDs

2. She'll purchase more quantity of three-ring binders

Step-by-step explanation:

INITIAL CASE:

Purchase: 5 DVDs and 12 Binders

Price of DVDs = x Price of Binders = y

NEW CASE:

Price of DVDs = $(x + 3) Price of Binders = $(y - 2)

Shandra's income is unchanged - it doesn't increase or fall in this period.

Prices of "other goods" is also constant - hence the decisions Shandra will make concerning quantity to purchase of DVDs & Binders, will solely be based on the new prices of the two items/commodities.

This clears the "ceteris paribus" assumption of the law of demand! All other things - income & prices of other goods - are already determined to be equal or constant.

In this case, the consumer, Shandra will purchase more of the good whose price has fallen and less of the good whose price has risen. Hence, the actions that Shandra would take are:

1. She'll purchase less quantity of movie DVDs

2. She'll purchase more quantity of three-ring binders