Suppose That We Are in a Condition of "Stuck" Prices

question 22

Essay

Suppose that we are in a condition of "stuck" prices so that the price of wooden chairs will not go above or below $125/unit.Further suppose that chair factories have been built on a business plan designed to deliver 200/month.How many chairs will be sold in a market in which demand (which includes a modest amount of inventory) is characterized by: (a) P = 425 - 1.5Q, (b) P = 530 - 1.5Q, and (c) P = 400 - 0.5Q, where P is in $/chair and Q is in chairs/month? In each case, what happens to planned inventory.

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Definitions:

Income Effect

Variations in personal or economic income and their influence on the demanded quantity of particular goods or services.

Normal Good

A normal good is a type of good for which demand increases when income increases and decreases when income decreases, assuming all other factors remain constant.

Inferior Good

A type of good for which demand decreases as the income of individuals increases, conversely, its demand increases when consumer income declines.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, contrasting with normal goods.