Homework 4

[Aisling Winston]

Homework 4 is due at 12pm on February 19, 2013.

1. (6 points) Give an example of an instance in your life that demonstrates how supply and demand interact to determine prices.  Be sure to make it clear in your example the mechanism by which prices are determined.
2. (6 points) For your example, provide an analysis of the impact of supply and demand.  What does the price reflect?  What does a change in price reflect?  Does the price or fluctuation in price match your expectations?  What is causing the price to behave in a way that differs from your expectations?  Students are encouraged to address different questions in their analyses.
3. (2 points) Why do lenders have interest rates on loans?
4. (6 points) For each of the following, indicate which has the higher interest rate and why: 30-year mortgage or 15-year mortgage; loan for a new car or loan for a used car; student loan taken out by a student with a cosigner or student loan taken out by a student without a cosigner.
   

[cjackem]

1. Gas prices are a good representation of supply and demand. The supply of oil is finite and so there is a committee that raises or lowers prices according to some arbitrary algorithm. We will always need gas, and they know it. So they raise the price whenever they deem it necessary. I'm sure they claim it has to do with the market, but it is really a game of how much are YOU willing to pay for it. They try to butt right up to that threshold.

2. Gas
Price reflects: If there is war where it came from, How desperate we are for it.(Very- all our plastic trinkets and even our food is dependent)

Yes it does meet my expectations. I expect the rich to victimize the poor

forever. And money itself is losing value (especially the $) so there will be a point where it stops being cost-effective.  This will be the point where a new demand is created- (i.e. more nickel for batterys). I expect there to be

increasing taxes attached to gas as well; the current administration needs more money to replenish the trillions of dollars spent. (And new arbitrary departments of government)

3. Lenders have interest rates on loans in order to make money. Also money itself has a depreciating value so in order for there to be a need for lenders it would have to make sense to lend money- i.e. profitable.

4. A 30 year mortgage would have a higher interest value because that money is taking longer to pay off. The longer the duration the more gets tacked on because lenders are cautious about inflation as well.
A loan for a new car would have a higher interest rate because they cost more money. This is the same logic as above. Also your credit would be a determining factor of the interest rate.
A loan taken out by a cosigner(with good credit) would have a lower interest rate because they have another person to sue once you don't pay. Any factor that would help the bankers will be reflected in the price.

[Dwilliams]

1. As for me, i am a musician. With that being said, i do a lot of pricing on equipment. If and instrument is not high in demand, the company will more than likely drop the price first. When this method fails to result in an increase in sales the company will eventually stop making the product. Most musicians want a sound that no one else has and if the company doesn't meet this requirement, they have no other choice. They will make less and less of them until there are no more left.


2.The price reflects the time that the product has been on the market. The change in price reflects the amount of sales that the company is getting. This price change will take months to occur. The company has to make sure that they have someone showing off the product to spread its popularity.

  Usually the price will not go up if more people buy. This is the instrument world, and people can make sounds. With this in mind, making the prices too high will turn musicians off. The sales make the price switch.

3. Lenders have interest rates to keep the balance. If a person lends out money, they will need more on the back end because it was for the borrowers convenience. This will always make the situation fair.

4.a. Interest rate is higher for 30 years because it is longer than 15 years
  b. Interest rate is higher for the new car because it is a new car.
  c. Interest rate is higher for the student with the help.

[kryan]

1. Probibly the most relevent instance in my life concerning supply and demand is when starwars episode 1 came out and everyone wanted a Darth Maul action figure because he was the new bad guy. When the figures first came out there was about one Darth Maul action figure for every box of 20 or 30. This produced scarcety of the product and so toystores quickly ran out of them.

 

2. For a while you could only get a figure on the second hand market if you couldnt find one in the store. If you could find one the figure was priced a bit higher than the normal ones. About a year later, after the hype went down, the demand for Darth Maul figures dropped and the company was left with a surplus of Darth maul figures. In order to get rid of the extra figures the company practically flooded the market with all of it's surplus figures and marked them down to outrageously low prices for an action figure just to make some sort of profit on them.

 

3. Lenders have interest rates on loans to encourage you to pay money back on the loans. Also so that the longer you take to pay back the loan the more interest is occumulated and the more you have to pay back when you do pay it back.

 

4. Between the 30 and 15 year mortgage the 30 will have the highest interest rate because it will take the longest to pay off. Between the new car and the used car, the used car will have the higher interest rate because a used car cannot be re-sold for the original price and with it being a used car there is more that can go wrong with it. So there is more risk investing in a used car so the interest rate will be higher.

 

5. The interest rate on the student without a cosigner will be higer than with a cosigner. The cosigner will have to be someone with a good line of credit and also be financially stable. For a bank, this means that they are not taking as much risk lending to the student with the cosighner as opposed to the student without one.

[Mike Donatacci]

1.  Seasonal clothing demonstrates how supply and demand interact to determine prices in my life.

In the late summer and early fall, the stores put out the winter clothes.  The clothes are always at full price.  If there is a particular item that everyone wants, especially for Christmas, the price never goes down and these items usually sell out before they go on sale. 

Notes/My opinion

 

2.  The price reflects how much someone is willing to pay for the item.  Some parents will buy the most popular and wanted items for their kids for Christmas no matter how much they cost.  The price could go up even further if it is a really in demand item that someone buys and sells for a higher price on Ebay.  If people want it bad enough, they'll pay the inflated price.

 

A change in price usually happens when items go on sale.  If things don't sell as fast as the store expected, they'll mark them down.  The fluctuation in price doesn't always match my expectations because sometime I think an item should be on sale and it isn't, but I always expect the in demand items to be at a high price.  The price could differ from my expectation because there  may be reasons why the store doesn't put something on sale even if it isn't selling.  Maybe that item had a higher wholesale price, or maybe the store is planning a huge sale the following month, so they won't mark that item down until that sale.  It could also be that those items are selling fast in another part of the country and the mass retailer can't mark it down yet.

Notes/My opinion

 

3.  Lenders have interest rates on loans because they are taking the risk that you won't pay the loan back.  Sometimes people will buy a car and only make a few payments on it.  It gets repossessed but the amount the car will sell for now usually doesn't cover the balance of the loan.  The interest the lender collects on the people who do pay off their loans kind of offsets the money they lose on the people that don't pay off the loan.   The interest rate is also what you pay for being allowed to borrow money.

Notes/My opinion

 

4.  A 15 year interest rate has a higher interest rate than a 30 year loan because you pay more interest over time with a 30 year loan even though the rate is lower.  The 15 year loan period  is shorter, so the lender still wants to make money by lending the money, so the interest rate is higher. 

 

A loan for a used car has a higher interest rate because the value of the used car is lower than the new car so there isn't as much recovery money for the lender if you don't pay off your loan.  It is also higher because many people with bad credit can't get a loan for a new car, so they buy a used car.  They are more risky to the lender because they have bad credit, so the rate will be higher.

 

A student loan with a cosigner has a lower interest rate than without because there is less risk to the lender that the loan will be paid back.  The cosigner is usually a parent that has more money and assets than the student has.

Notes/ My opinion

 

 

 

[Christina H.]

1.      For examples iPods and Iphones from Apple. Over the years iPhones have become very popular and that everyone wanted one so the demand for them increases, also the supply. Everybody I know have either an iPod or a iPhone and it’s still in demand. Which means the prices goes up. I see iPhones ranging from $100 to almost $600, and people still buy them. Apple are still coming out with more new versions of iPhones.

2.     The impact of supply and demand is that price affects it, for example if the demand increases and the supply remains unchanged that leads to a higher equilibrium price, and if it decreases the equilibrium is low. The prices in supply and demand reflect how good an item is selling.

Yes it matches my expectations. Prices are supposed to determine by the quality of supply and demand.

3.     Lenders have interest rates on loans to charge people for borrowing. For instance people receive higher interest rates if they have no good credit versus people with good credit. Interest rates vary on how long you borrow on the loans, like on school or car loans.

4.     A 30 year mortgage has a higher interest rate than a 15 year one because the years of borrowing it is much longer than the 15 year mortgage. A loan foe a new car tends to be higher interest rates than a used one because it’s new and there’s less than a used one, but the interest varies. A student without a cosigner would have a higher interest rate than a person with one because that person is an independent meaning that person is only paying for their education and having no help. People with a cosigner usually have good credit, and is helping them which is less risk that a person without one.

[Kendall Lynnette]

Kendall Williams

Aisling Winston

ECN 400

February 19, 2013

 

Homework Four

            1. In my life, an instance that demonstrates how supply and demand interact is how I price my services as a photographer. If the demand for my photography decreases, I'm compelled to run a sale or contest in order to gain more business. The market affects a photographer's pricing in major ways because if people are not willing to pay a premium for our services, we have to decrease the prices for them or move to another area of the market that will pay our prices.

            Supply also affects a photographer's pricing. If the studio to which I outsource runs a sale or decreases their prices on portrait products, I'm able to lower my prices on prints, albums, and canvases, ultimately increasing the quantity I sell.

            2. There are several ways in which a shift in supply or demand could change my pricing. If the price of my supplies increases, my supply will decrease, forcing me to increase my prices and lose quantity sold. If the price of my supplies decreases, my supply will increase, allowing me to lower my prices and sell a larger quantity. If demand for my products increases, I can raise my prices and still sell a larger quantity of products. If demand for my products decreases, I will be forced to lower my prices and lose quantity sold.

            In each of these situations, the price reflects the current market and what people are willing to pay. Any change in price reflects a shift in either supply or demand. All of these scenarios meet my expectations. It makes perfect sense how supply and demand dictate what my prices are supposed to be to an extent.

            3. Lenders charge interest rates for two reasons: to make a profit and to discourage people from taking out a loan. If a lender did not charge interest, there would be no incentive for him to lend out his money to someone. It is much easier for someone to lend large sums of money to another person if he knows he will be repaid in full plus extra in the years to come. They also do so to discourage loans. For example, banks do not actually want to lend people money because in reality, that money will not be paid back in full for a very long time. By implementing higher interest rates, people are less likely to take out large loans because they will have to pay so much extra over time.

            4. In the case of a 30-year or 15-year mortgage, the 15-year mortgage will have a higher interest because the timespan over which you will pay back your loan is much shorter; however, this also means that you will pay much less interest so overall, the 15-year mortgage is a better deal. You may have to pay higher monthly payments, but in the end, it will save you a lot of money.

            In the case of the new or used car, loans for used cars are higher because the used cars have already depreciated and are seen as less valuable to consumers. Another reason is because dealerships usually have to put work into them before they can resell them so they have to charge a higher interest rate to compensate.

            In the case of the student loan, a loan taken out by a student without a cosigner will have a higher interest rate because in the eyes of lenders, students have not demonstrated financial credibility yet; therefore, they believe there is much more risk involved when lending money to just a student. By signing with a credible cosigner, the student will most likely receive a lower interest rate and will ultimately save money over the life of the loan.

 

Works Cited

Winston, Aisling. "Lecture Notes." 2013. 02/18/2013.

[MorganA]

1. One of my favorite things in life.. FOOD! One of my least favorite things.. paying for food. I have a Love/Hate relationship with the grocery store. Prices of food products are always changing for multiple reasons: 

  -How many people want/buy 

  -Weather

  -Seasons 

  -Unhealthy Competition

2. When the supply and demand changes for a specific food product it changes things for the buyers and the sellers. When production cost increases or decrease that directly changes the price. The supply and demand needs to stay in the middle where they meet (market equilibrium) so there is not a shortage or surplus. 

3. They need to make money. It’s a business. They change the interest rates based on the risk of not getting their money back.

4. 30 year mortgage has the higher interest rate because they are giving you the money for a longer amount of time, a used car and a student loan without a cosigner will also have the higher interest rate because the risk is higher that they might not get their money back.

[Jonathan Gibson]

1. Video games demonstrate how supply and demand interact to determine prices in my instance. During the Christmas holiday, video games are in high demand from ages ranging from six to thirty-six. Since the initial price is already determined by the company before released, the only thing that would make the price drop is if no one demands it. Of course, if no one does then the prices drop. If it's a popular game, it really doesn't matter too much what the starting price is because that company knows that there is someone out there that will pay that ridiculous price just to have that game. The reason why the price drops is because the company has an overflow of that particular good and they have to strive to make a profit. And again if demand is high not only will customers pay for expensive games, but the company will also keep the high prices on the games for a longer time before prices drop. In short, the supply must meet this demand at its equilibrium point in order to operate effiently. 

2. The price reflects what the company sets, but also how popular that series or game is in particular to me. The change in price represents the demand in the product either negatively (low demand) or positively (high equilibrium point). I have to be honest, sometimes when I have waited a long time for the price to drop, and it hasn't, it does sadden me. However, if I was in the position of that company I would be very happy because with the price having not moved, it means that someone is still buying it at that price. So yes, the fluctuation when it does happen very much does match my expectation. I think the reason why the prices act the way they do is because the company has ordered to many products so the supply is way up, but it is inefficient because it doesn't match demand to make a equilibrium point. When something is not efficient then it is useless and does nothing for me. 

3. Lenders have interest rates so that they may gain something out of the transaction.

4. The longer the duration the more cautious the lender will be. Those borrowing may forget about it and in the that case it would be very beneficial for the one lending. So 30 year would have a higher interest rate. I feel the new car would have a higher interest rate, just for the fact that it is new and probably costs more than the used one. And finally the student with the cosigner would have a big interest rate because the lender would have to deal with two people. Why not get a profit from two people.

[David]

1. Give an example of an instance in your life that demonstrates how supply and demand interact to

Determine prices. Be sure to make it clear in your example the mechanism by which prices are Determined.

                During online MMO gaming you can often see supply and demand at work in games that feature auction houses. While it is not a physical good it still holds true to this principle. For items with a large drop rate or that are of low quality the price is often very small in comparison to the items with a low drop rate that are stronger. Just like in or market you can put the price for your good at anything you want but in order to actually be successful you have to study the market and react accordingly. The more of an item there is or the more that people want that item dictate the how low the prices are able to go.

2. For your example, provide an analysis of the impact of supply and demand. What does the price reflect?

What does a change in price reflect? Does the price or fluctuation in price match your

expectations? What is causing the price to behave in a way that differs from your expectations?

Students are encouraged to address different questions in their analyses (2+ paragraphs).

                In many MMO games there are base materials to make goods from and these base materials have some of the highest amounts of fluctuation in prices based on the availability of those goods. Metal ores in World of Warcraft can be used to make a multitude of armors and weapons. The more advanced in level an ore is the more the price is going to be and on top of that the less available it is in the marketplace the higher the price is going to be as well. A change in price for these ore might be caused by the developers updating and changing some small features of the game or a new expansion with armor that requires particular ore to be used. Developers do this so they can have a free but guided marketplace.                

After playing the game and investing sometime in the marketplaces you quickly learn how they work so most people aren’t surprised when prices of goods raise and lower. It becomes almost predictable. The only things that really changes expectations is if someone buys a good in order to have a monopoly on that good and sets the price well above the price point it should be at based on the actual supply and demand. Most players cannot hold this type of monopoly very long and end up having made a lot of money but losing control over their market to other players and it eventually resets.

3. Why do lenders have interest rates on loans (1 paragraph)?

                Lenders have interest on loans so they can make money off of their money that you need. They have a good and a service and the way you actually pay for that good and service is through the interest. Our lives are designed so that you have to your average person has to ask for someone to lend them money and has to pay other people interest for that money. The interest is almost free money for the lenders.

4. For each of the following, indicate which has the higher interest rate and why: 30-year mortgage or 15-

year mortgage; loan for a new car or loan for a used car; student loan taken out by a student with a

cosigner or student loan taken out by a student without a cosigner (3 paragraphs).

                Between a 30 and 15 year mortgage at the same rate you will pay more for the 30 year mortgage because of the extra 15 years you are paying interest on. If the same interest rate for a new or used car is used a used car will be less interest because it has less principle. A student loan will be lower for younger students with no credit if they have a cosigner because the lenders will have a more stable idea that they will be repaid. The effects are not as beneficial for a cosigner if you already have good credit.

[Julian]

Supply and demand is something that you see everyday. When I go to the grocery store I see supply and demand. Looking at fruit  you can go to different stores and if he demand for a special type of fruit is high in the store they will carry it and the price might go up because not a lot of other stores carry it therefore they can charge more.

 

The Price of the fruit reflects the demand of the people buying it. If there is a change in price there might be several reasons, one might be because the store might have competition now and they have to lower there price.

 

Lenders have have interest rates because if they just lend out money without interest they would not be making any money off the money they are lending.

 

A 30-year mortgage would have a lower interest rate over a 15-year mortgage because the 15 year is shorter and shorter loans most of the time have higher rates. A loan over a new or used car, the used car would have a higher intrest rate because th used car is more of a liability, the car might breakdown more than a new one and you would have to get a newer car. A student loan taken out with out a cosigner would have a higher interest rate because the student does not have credit.

 

Julian Thomas 

[darienM]

Darien Murphy

Homework 4

1.) One instance in my life where supply and demand have interacted to determine price was when i bought my iphone. The demand for the iphone was so high that people were asked to pre-order to insure they could get one before they sold out. This means that Apple was able to sell the phone for a high price of $600.00. It cost apple around $200.00 to make the iphone so they are already making more back than they spent to produce the phone. The high demand for the product allowed them to raise prices and still make a profit.

2.) The demand for the produce is so high that the company can almost charge any price and still see their product sell. i think the price of $600.00 reflects that this is either a very high quality phone, or that its just a very popular phone. If the were to rise it would reflect that the demand is too high and they don't have the resources to meet the demands. If the price were to drop that would indicate that the demand is not that high and they are lowering prices to influence people to purchase the phone. The price did match my expectations. i knew that the demand for the phone was very high and that the price would reflect the demand.

3.) An interest rate is the rate at which interest is paid by the borrower for the use of money from lenders (wiki). It is believed that lowering interest rates can give the economy a small boost. Lenders use interest rates to make money off of the borrowers. lenders provide a similar service to banks, it is all a business and lenders make their profit of off charging interest for money borrowed.

4.) The interest rate on a loan for a new car is higher than the rates for a thirty year fixed mortgage or a student loan without a cosigner. I believe the reason for this is because most people buy or drive cars. Banks and auto lenders know that people will always need to buy cars, therefore they try and make deals look good and allow people to finance their cars through a the use of a loan.