Question

1. Suppose I come to class with cookies to sell for 10 cents a piece. I notice that Jim purchases 8 cookies, Lara purchases 5 cookies, Jennifer purchases 2 cookies, and Evelyn does not buy any cookies. Further, suppose that all students have plenty of money on hand to purchase cookies. How would an economist go about explaining the difference in cookie purchases?

Answer 1

Though students have money that can be used to buy cookies, one of the two necessary things in case of demand estimation is the willingness (besides being the ability) to pay by the consumers. In this case, Evelyn does not buy any cookies because her willingness to pay for cookies is less than its offered price of 10 cents. Jim, Lara and Jennifer are buying cookies but their quantity demanded is determined by the current price of 10 cents and their willingness to pay. Hence, an economist would use the willingness to pay and the current price to explain the demand schedule of these consumers and then explain the difference in cookie purchases.