Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 75 - Chapter 4 CONSUMER DEMAND QUESTIONS & ANSWERS Q4.1"Theutilityderivedfromconsumptionisintangibleandunobservable.Therefore, the utility concept has no practical value.@Discuss this statement. Q4.1ANSWER Theutilityderivedfromconsumptionisintangible,andthereforeunobservable.However, measurable influence on their purchase decisions.Through their revealed preferences, consumers convey their evaluation of the value, or worth, of individual products.Whilethevaluederivedthroughconsumptionisintangible,itleadsto purchase decisions that can be monitored and responded to by firms. Q4.2Isanincreaseintotalutilityorsatisfactionfollowinganincreaseinincome inconsistent with the law of diminishing marginal utility? Q4.2ANSWER No,thelawofdiminishingmarginalutilitystatesthatthemarginalutilityderived from consumption will eventually diminish as consumption increases during a given timeperiod.Thismeansthattheadditiontototalutilityperdollarofincomewill tendtofallastotalincomerises.Despitethefactthattotalutility,orwell-being, tends torise with income, it istypical that the marginal utility derivedper dollar of incometendstofallasincomerises--asispredictedbythelawofdiminishing marginal utility. Q4.3Prospective car buyers are sometimes confronted by sales representatives who argue thattheycanofferavehiclethatisAjustasgoodasaBMW,butatone-halfthe price.@Usetheindifferenceconcepttoexplainwhytheclaimsofthesales representative are not credible. Q4.3ANSWER Iftwoproductsprovidethesameamountofsatisfactionorutility,theconsumeris said to display indifference between the two.Indifference implies equivalence in the eyesoftheconsumer.Aconsumercanbeindifferentbetweengoodsandservices Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 76 - thataredistinctinaphysicalormaterialsense.Similarly,aconsumercandisplay distinctly different preferences for goods and services that are similar in a physical or materialsense.What=simportantinthecaseofconsumerindifferenceisthattwo products yield the same amount of satisfaction or well-being to the consumer. This should make consumers skeptical of sales representative who argue that a cheaperproductisAjustasgoodas@amoreexpensivecompetitor.Firstofall, cheapersubstitutesseldomperformatthesamehighlevelascompetingproducts with a deservedly superior reputation.And second, it is important to remember that when consumers buy a product, they purchase a whole range of attributes associated withthatproduct.Forexample,theBMW760ifour-doorsedanisa$125,000 vehiclefamousamongcarbuffsforitsawesomepower,comfort,andstyling.BuyersofaBMW760ifour-doorsedannotonlyenjoythecreaturecomfortsofa fine automobile, some also enjoy the Asnob appeal@of owning a rare and exclusive automobilethattellsallonlookersthattheyaresuccessful.WhileyouandImight think Asnob appeal@is silly, some consumers have a different opinion, and who are we to argue with consumer preferences? Q4.4Following a price change for Diet Coke, explain how retailers use sales information to learn if Doritos snack chips represent a complement or substitute for Diet Coke. Q4.4ANSWER Followingapricechange,companiesusesalesinformationtodistinguish complements from substitutes by noting the size and direction of effects on demand forrelatedproducts.Demandcurvesaredownwardsloping.Asaresult,whenthe price of a product is decreased, sales of that product rise.At the same time, sales of substitutesfallascustomersswitchtothenowlower-pricedalternative.Whenthe price of a product rises, sales of that product fall but sales of substitute products rise ascustomersswitchtothesubstitute=srelativebargainprice.Thereisapositive correlation between price changes and units sold when two products are substitutes.Salesofsubstituteschangeinthesamedirectionofthepricechangeforsubstitute products. Conversely, when the price of a product is decreased, sales of that product and complements both rise.When the price of a product rises, sales of that product fall asdosalesofcomplementaryproducts.Thereisaninversecorrelationbetween price changes and units sold when two products are complements.

Q4.5Describe the income, substitution, and total effects on consumption following a price decrease. Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 77 - Q4.5ANSWER Thetotaleffectonconsumptionfollowingapricedecreaseconsistsofincomeand substitutioneffects.First,consumerswilltendtosubstitutethenowrelativelyless expensiveproductsforitssubstitutes.Thisinvolvesamovementalongagiven indifferencecurvetoamarketbasketconsistingofalessexpensivecombinationof goods and services that provide the same utility and is called the substitution effect.In addition, a decrease in the price of a product means that a given budget will allow a greater total amount of goods and services to be purchased for consumption.As a result, a price decrease has a secondary effect similar to a inccrease in income.

Q4.6During the past 40 years the average price of a new single-family home has risen by a factor of ten, making the cost of housing prohibitive for many Americans.Over the same time frame, however, the number of units sold per year has more than doubled.Arethesedatainconsistentwiththeideaofadownward-slopingdemandcurvefor new housing? Q4.6ANSWER No,thesedataareconsistentwithadownward-slopingdemandcurvefornew housing.Formostgoodsandservices,thepricechargedisthemostimportant determinant of sales.Quantity demanded falls with a price increase, and rises with a price decrease.In the case of housing, the quantity demanded would have fallen as pricesroseexceptfortheoverwhelminginfluenceofrisingincomesovertime.Housingisanormalgood.Housingdemandrisessharplyduringeconomic expansionsandcontractsduringrecessions.Overlongperiodsoftime,housing demand rises slowly and steadily as economic growth raises disposable income.It is vitalthatstudentsseparateoutpriceandincomeeffectswhenconsideringthe demand for housing and other products. Q4.7Whatwouldanupward-slopingdemandcurveimplyaboutthemarginalutility derived from consumption?Why aren't upward sloping demand curves observed in the real world? Q4.7ANSWER Thelawofdiminishingmarginalutilitystatesthatthemarginalutilityderivedwill fallastheconsumptionofagivenproductincreasesduringagiventimeinterval.This gives rise to a downward sloping demand curve for all goods and services.For agivendemandcurvetobeupwardsloping,anincreasingmarginalutilityof Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 78 - consumption would have to be operative.This is counter to human nature.Despite mythsthatsometimesariseconcerningthepricingofsomeluxurygoods,like perfume, there is no real-world evidence of upward sloping demand curves. In this regard, it is worth emphasizing the fact that an upward sloping demand curveimpliesthathigherpricesleadtoanincreaseinquantitydemanded.Under such a wonderful circumstance, firms would have an incentive to charge higher and higherprices(Atoinfinityandbeyond!@).Nothingwouldlimitthefirmsabilityto gain revenues by raising prices.In the real world, higher prices eventually result in some buyers being priced out of the market and to an eventual downturn in revenues. Q4.8How is a price-consumption curve related to a demand curve? Q4.8ANSWER If income and the prices of other goods and services are held constant, a reduction in theprice of agivenconsumptionitemcausesconsumerstochoosedifferentmarket baskets.Thevariousmarketbasketsthatmaximizeutilityatdifferentpricesfora givenitemtraceouttheconsumer=sprice-consumptioncurve.Forexample,the price-consumptioncurveshowshowtheoptimalconsumptionofbothgoodsand servicesareaffectedbychangingpricesforservices.Asimilarprice-consumption curvecouldbeusedtoillustratehowtheoptimalconsumptionofbothgoodsand servicesareaffectedbychangingpricesforgoods.Ontheotherhand,thedemand curve for services shows how the quantity demanded ofservices rises in a response to a fall in the price for services.A similar individual demand curve could be used to illustrate how the quantity demanded ofgoodsrises inaresponsetoafallinprices for goods. Q4.9Individualconsumerdemanddeclinesforinferiorgoodsaspersonalincome increasesbecauseconsumersreplacethemwithmoredesirablealternatives.Isan inverse relation between demand and national income likely for such products? Q4.9ANSWER No,notusually.Theoretically,itisplausiblethattheaggregatedemandforsome goodsandservicesmightbecounter-cyclical,actuallyrisingduringabusiness recessionandfallingduringaneconomicboom.Afterall,ifindividualconsumers shift from hamburger to steak as incomes rise, wouldn't it seem reasonable to expect hamburger demand to rise with a fall in income?The answer seems to be yes and no. Yes, as incomes rise, demand from high-income individuals declines for Ainferior@goodslikehamburger,busrides,andbluejeansastheseconsumersswitchtomore Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 79 - desirablesubstitutessuchasporterhousesteak,automobiles,anddesignerclothing.However,asincomesrise,otherlow-incomeconsumersmoveuptheeconomic ladder.Perhaps for the first time, they are now able to afford hamburger, bus rides, and blue jeans.As a result, economy wide demand for so-called inferior goods may actually rise as income levels increase, albeit at a much slower pace than demand for other, more desirable products. Despitealackofempiricalevidence,thepossibilityofaninverserelation betweenaggregateproductdemandandincomehasintriguedeconomistsfora numberofyears.Thisinterestwasoriginallycreatedbyananomalycalledthe Apotatoparadox.@Aslegendhasit,aVictorianeconomistnamedRobertGiffen discoveredthatthepotatocropfailureof1845sodepressedIrishincomesthatthe poorhadtoactuallyincreasetheirconsumptionofthenowhigher-pricedpotatoes.Because they had to spend so much on potatoes, a necessary staple, the poor couldn't affordmeatorothersubstitutesandbecameevenmoredependentthanbeforeon potatoes.Thus,potatoesbecameknownastheclassiccaseoftheinferioror, AGiffen,@good.However, empirical evidence casts serious doubt on the credibility ofsuchachainofevents.Afterstudyingthehistoricalrecord,economistsGerald Dwyer and Cotton Lindsay found little support for the notion that the consumption of potatoesinIrelandincreasedduringthisperiod.Sowidespreadweretheeffectsof thefungusPhytophthorainfestansthatitdestroyedroughlyone-halfofthe1845 potato crop in Ireland after inflicting serious damage in America, in England, and on theContinent.AfterSeptember1846anduntilharvesttimeinAugustofthe following year, few potatoes could be bought at any price.Without imports and with adecreaseindomesticsupply,howcouldpotatoconsumptionbythepoorpossibly have risen during theIrishpotatofamine?Moreover,thereisnoevidencethatlow potato prices during good years had a depressing effect on potato consumption by the poor, as would be necessary to classify potatoes as an inferior good.Therefore, it is onlyreasonabletoconcludethattheincreaseinpotatopricesandthedecreasein incomecausedbytheIrishpotatofamineresultedinadeclineintheaggregate consumptionofpotatoes.Asistypicalforgoodsingeneral,apositiverelation betweenpotatodemandandeconomywideincomeseemstohold.Despitethe legendofthepotatoparadox,concreteevidenceofaninverserelationbetween aggregate demand and income remains elusive. (See:GeraldP.Dwyer,Jr.andCottonM.Lindsay,ARobertGiffenandthe Irish Potato,@American Economic Review, March 1984, 188-192.) Q4.10ThroughoutmuchoftheUnitedStates,high-wageworkersshunpublictransitand drive their cars to work.At the same time, these same high-income individuals often support massive subsidies for public transit.Use the concept of revealed preference Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 80 - toexplainthepublicdemandfortransportation.Canyouexplainthissomewhat confusing consumer behavior by high-income individuals? Q4.10ANSWER High-wage workers often shun public transit and drive their cars to work.This stems fromthefactthattimeintransitisacompellingconsiderationforsuchworkers.Getting where they need to go, and getting there on time, matter much more than the out-of-pocketcostsassociatedwithdrivingtowork.Forexample,KobeBryant=s timeisvaluable,andhedrivestowork.Histimeismuchtoovaluabletobespent waiting for the bus. At the same time, it is fascinating to note the almost universal political support forsubsidizedmasstransitamonghigh-incomeindividuals.Whilehigh-income individualshaveadocumentedrevealedpreferencefordrivingtowork,theyprefer thatothers,includingthelessfortunate,takepublictransit.Thismakeseconomic sense from the standpoint that subsidized mass transit might reduce road and parking congestion,andtherebymakedrivingtoworkeasierforhigh-incomeindividuals.these same high-income individuals often support massive subsidies for public transit. Ontheotherhand,itislessobviouswhyhigh-incomeindividualsmightsupport woefully underutilized mass transit.Perhaps they view support for such mass transit asatypeofincometransfertothepoorandotherbeneficiariesofmasstransit (government employees, equipment manufacturers, and so on). SELF-TEST PROBLEMS & SOLUTIONS STP4.1Budget Allocation.Consider the following data: Goods (G) Services (S) Units Total Utility Units Total Utility 0 0 0 0 1 150 1 100 2 275 2 190 3 375 3 270 4 450 4 340 5 500 5 400 Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 81 - A.Construct a table showing the marginal utility derived from the consumption of goodsandservices.Alsoshowthetrendinmarginalutilityperdollarspent (the MU/P ratio) if PG = $25 and PS = $20. B.Ifconsumptionofthreeunitsofgoodsisoptimal,whatlevelofservices consumption could also be justified? C.Ifconsumptionoffiveunitsofservicesisoptimal,whatlevelofgoods consumption could also be justified? D.Calculate the optimal allocation of a $150 budget.Explain. STP4.1SOLUTION A. GOODS (G) SERVICES (S) Units Total Utility Marginal Utility MU/PG = MU/$25 Units Total Utility Marginal Utility MU/PS = MU/$20 0 0 -- -- 0 0 -- -- 1 150 150 6.00 1 100 100 5.00 2 275 125 5.00 2 190 90 4.50 3 375 100 4.00 3 270 80 4.00 4 450 75 3.00 4 340 70 3.50 5 500 50 2.00 5 400 60 3.00 B.S=3.When3unitsofgoodsarepurchased,thelastunitconsumedgenerates100 utils of satisfaction at a rate of 4 utils per dollar.Consumption of 3 units of services couldalsobejustifiedonthegroundsthatconsumptionatthatlevelwouldalso generate 4 utils per dollar spent on services. C.G = 4.When 5 units of services are purchased, the last unit consumed generated 60 utilsofsatisfactionatarateof3utilsperdollar.Consumptionof4unitsofgoods could be justified on the grounds that consumption at that level would also generate 3 utils per dollar spent on goods. Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 82 - D.G=3andS=3.75.Theoptimalallocationofa$100budgetinvolvesspending accordingtothehighestmarginalutilitygeneratedperdollarofexpenditure.First, one unit of goods would be purchased since it results in 6 utils per dollar spent.Then, one units of services and another unit of goods would be purchased, each yielding 5 utils per dollar.Then , a third unit of both goods and services would be purchased, thus yielding 4 utils per dollar.With thee units of goods and three units of services, a total of $75 dollars will have been spent on goods and $60 on services.This totals $135 in expenditures, and leaves $15 unspent from a $150.budget.Assuming that partialunitscanbeconsumed,$15isenoughtobuyanadditional0.75unitsof services. STP4.2Individual Demand Curve.Alex P. Keaton is an ardent baseball fan.The following table shows the relation between the number of gamesheattends per month during the season and the total utility he derives from baseball game consumption: Number of Baseball Games per Month Total Utility 0 0 1 50 2 90 3 120 4 140 5 150 A.ConstructatableshowingKeaton'smarginalutilityderivedfrombaseball game consumption. B.At an average ticket price of $25, Keaton can justify attending only one game per month.Calculate Keaton=s cost per unit of marginal utility derived from baseball game consumption at this activity level. C.If the cost/marginal utility trade-off found in part B represents the most Keaton is willing to pay for baseball game consumption, calculate the prices at which he would attend two, three, four, and five games per month. D.Plot Keaton's baseball game demand curve. Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 83 - STP4.2SOLUTION A. Number of Baseball Games Per Month Total Utility Marginal Utility 0 0 -- 1 50 50 2 90 40 3 120 30 4 140 20 5 150 10 B.At one baseball game per month, MU = 50.Thus, at a $25 price per baseball game, thecostperunitofmarginalutilityderivedfrombaseballgameconsumptionis P/MU = $25/50 = $0.50 or 504 per util. C.At a maximum acceptable price of 504 per util, Keaton's maximum acceptable price for baseball game tickets varies according to the following schedule: Number of Games Per Month Total Utility Marginal Utility MU = U/G Maximum Acceptable price at 504 per MU 0 0 -- -- 1 50 50 $25.00 2 90 40 20.00 3 120 30 15.00 4 140 20 10.00 5 150 10 5.00 D.Keaton's baseball ticket demand curve is: Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 84 - PROBLEMS & SOLUTIONS P4.1A.MarginalUtility.Completethefollowingtable,whichdescribesthedemand for services: Price Units Total Utility Marginal Utility Price/Marginal Utility $80 0 0 --- --- 75 1 100 70 2 180 65 3 240 60 4 280 55 5 300 B.Howdoesanincreaseinconsumptionaffectmarginalutilityandthe price/marginal utility ratio? C.What is the optimal level of services consumption if the marginal utility derived from the consumption of goods costs $1 per util? Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 85 - 4.1SOLUTION A. Price Total Units Total Utility Marginal Utility Price/Marginal Utility $75 1 100 100 $0.75 70 2 180 80 0.875 65 3 240 60 1.08 60 4 280 40 1.50 55 5 300 20 2.75 B.Themarginalutilityderivedfromgoodsconsumptionfallsasthenumberofunits consumedincreases.Thisfollowsfromthelawofdiminishingmarginalutility.Indeed,marginalutilityisfallingsorapidlythattheP/MUratioincreasesasthe numberofunitsconsumedexpands.Despitefallingprices,themarginalcostof utility derived from services consumption is rising. C.S=2unitsofservicesshouldbepurchasedifthemarginalcostofutilityderived from the consumption of services is $1 per util.The first unit of services consumed involves a cost of 754 per util.The second unit of services consumed involves a cost of 804 per util.Both represent relative bargains. However, a third unitof services would involve a price-utility tradeoff of $1.08 per util.At a marginal cost of $1 per util, services consumption would represent the better bargain. P4.2Utility Theory. Determine whether each of the following statements is true or false.Explain why. A.According to the theory of consumer behavior, more is always better. B.Consumer must understand how much one product is preferred over another in order to rank-order consumption alternatives. C.Amarketbasketisadescriptivestatementthatrelatessatisfactionor well-being to the consumption of goods and services. Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 86 - D.The nonsatiation principle abstracts from time and place considerations. E.Marginalutilitymeasurestheconsumer'soveralllevelofsatisfactionderived from consumption activities P4.2SOLUTION A.True.ConsumerbehaviortheoryrestsupontheAmoreisbetter@assumption regarding the utility tied to consumption.All goods and services are desirable in the senseofbeingabletosatisfyconsumerwants.Asaresult,consumerswillalways prefer more to less of any good or service. B.False.Theconsumer=sunderstandingofordinalutilitymakespossiblearank orderingofpreferredgoodsandservices.Noticethatknowledgeconcerning completeconsumerpreferencesdoesnotnecessarilyincludeunderstandingabout how much one product is preferred over another. C.False.Autilityfunctionisadescriptivestatementthatrelatessatisfactionor well-being to the consumption of goods and services. D.True.Atanyspecificplaceandtime,consumersdobecomesated.Therefore,the nonsatiationprincipleinvolvesacertainamountofabstractionfromtimeandplace considerations.It is best considered within the context of money income where more money brings additional satisfaction or well-being. E.False.Whereastotalutilitymeasurestheconsumer'soveralllevelofsatisfaction derived from consumption activities, marginal utility measures the added satisfaction derivedfromaone-unitincreaseinconsumptionofaparticulargoodorservice, holding consumption of other goods and services constant. P4.3LawofDiminishingMarginalUtility.Indicatewhethereachofthefollowing statements is true or false.Explain why. A.Thelawofdiminishingmarginalutilitystatesthatasanindividualincreases consumptionofagivenproductwithinasetperiodoftime,theutilitygained from consumption eventually declines. Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 87 - B.When prices are held constant, a diminishing marginal utility for consumption decreases the cost of each marginal unit of satisfaction. C.Marginalutilitymeasurestheaddedsatisfactionderivedfromaone-unit increaseinconsumption,holdingconsumptionofothergoodsandservices constant. D.Whengoodsarerelativelyscarce,thelawofdiminishingmarginalutility means that the added value of another unit of goods will be small in relation to the added value of another unit of services. E.Thelawofdiminishingmarginalutilitygivesrisetoadownward-sloping demand curve for all goods and services. P4.3SOLUTION A.False.In general, the law of diminishing marginal utility states that as an individual increasesconsumptionofagivenproductwithinasetperiodoftime,themarginal utility gained from consumption eventually declines. B.False.When prices are held constant, a diminishing marginal utility for consumption increases the cost of each marginal unit of satisfaction. C.True.Whereastotalutilitymeasurestheconsumer'soveralllevelofsatisfaction derived from consumption activities, marginal utility measures the added satisfaction derivedfromaone-unitincreaseinconsumptionofaparticulargoodorservice, holding consumption of other goods and services constant. D.False.Whengoodsarerelativelyscarce,thelawofdiminishingmarginalutility meansthattheaddedvalueofanotherunitofgoodswillbelargeinrelationtothe added value of another unit of services. E.True.Thislawgivesrisetoadownward-slopingdemandcurveforallgoodsand services. P4.4Indifference Curves.Suggest briefly whether each of the following statements about indifference curves that show preferences between goods and services is true or false and defend your answer. Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 88 - A.Consumerspreferhigherindifferencecurvesthatrepresentgreater combinations of goods and services to lower indifference curves that represent smaller combinations of goods and services. B.Indifferencecurvesslopedownwardbecauseifthequantityofoneconsumer product is reduced, the quantity of the other must also decrease to maintain the same degree of utility. C.Theslopeofanindifferencecurveshowstherateatwhichconsumersare willing to tradeoff goods and services. D.ThefactthatindifferencecurvesdonotintersectstemsfromtheAmoreis better@ principle. E.Indifferencecurvesbendinward(areconcavetotheorigin)becauseifgoods are relatively abundant, the added value of another unit of goods will be small in relation to the added value of another unit of services. P4.4SOLUTION A.True.Consumers prefer more to less, so they prefer higher indifference curves that representgreatercombinationsofgoodsandservicestolowerindifferencecurves that represent smaller combinations of goods and services. B.False.Indifference curves slope downward.This stems from the fact that the slope ofanindifferencecurveshowsthetradeoffinvolvedbetweengoodsandservices.Becauseconsumerslikebothgoodsandservices,ifthequantityofoneisreduced, the quantity of the other must increase to maintain the same degree of utility. . C.True.Theslopeofanindifferencecurveshowstherateatwhichconsumersare willingtotradeoffgoodsandservices.Forexample,whengoodsarerelatively scarce, the law of diminishing marginal utility means that the added value of another unit of goods will be large in relation to the added value of another unit of services.Conversely,whengoodsarerelativelyabundant,theaddedvalueofanotherunitof goods will be small in relation to the added value of another unit of services. D.True.Indifference curves do not intersect.Holding goods constant, an indifference curveinvolvingagreateramountofservicesmustgivegreatersatisfaction.Similarly,holdingservicesconstant,anindifferencecurveinvolvingagreater amount of goods must give greater satisfaction.This stems from the fact that goods Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 89 - andservicesbothprovideconsumerbenefits,andreflectstheAmoreisbetter@principle. E.True.Indifferencecurvesbendinward(areconcavetotheorigin).Forexample, when goods are relatively scarce, the law of diminishing marginal utility means that the added value of another unit of goods will be large in relation to the added value ofanotherunitofservices.Conversely,whengoodsarerelativelyabundant,the added value of another unit of goods will be small in relation to the added value of another unit of services. P4.5BudgetConstraints.Holdingallelseequal,indicatehoweachofthefollowing changeswouldaffectabudgetconstraintthatlimitsconsumptionofgoods(Y)and services (X).Explain your answer. A.Deflation that uniformly drops the price of all goods and services. B.Inflation that consistently increases the price of all goods and services. C.Technicalchangethatreducesthepriceofgoods,butleavesthepriceof services unchanged. D.Economic growth that boosts the level of disposable income. E.Government-mandatedhealth care coverage for workersthatbooststheprice of goods by 3% and increases the price of services by 5%. P4.5SOLUTION A.Deflation that drops the price of all goods and services results in a parallel rightward (outward)shiftinthebudgetconstraint.Holdingincomeconstant,lowerprices make itpossibleforconsumerstobuymoregoodsandserviceswiththesametotal amountofspending.Thisbeneficialimpactonconsumptionissimilartothat following an increase in income. B.Inflationthatincreasesthepriceofallgoodsandservicesresultsinaparallel leftward(inward)shiftinthebudgetconstraint.Holdingincomeconstant,higher prices reduce the amount of goods and services that consumers can buy with a fixed amountofspending.Thisharmfulimpactonconsumptionissimilartothat following a decrease in income. Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 90 - C.Technicalchangethatreducesthepriceofgoods,butleavesthepriceofservices unchangedresultsinanoutwardrotationofthebudgetconstraintalongthegoods(Y) axis.After such a change, the budget line intersects the Y axis at a higher point, indicatingthatagreateramountofgoodscanbepurchasedwithafixedbudget.Theamountofservicesthatcanbepurchasedforafixedamountisunaffectedby suchachange,andtheXintercept(servicesaxis)ofthebudgetconstraintis unaffected by such a change. D.Economicgrowththatbooststhelevelofdisposableincomeresultsinaparallel rightward (outward) shift in the budget constraint.Holding prices constant, growing incomemakesitpossibleforconsumerstobuymoregoodsandserviceswiththe same total amount of spending.This beneficial impact on consumption is similar to that following deflation that drops the price of all goods and services. E.Government-mandatedhealthcarecoverageforworkersthatbooststhepriceof goods by 3% and increases the price of services by 5% will have a negative impact on consumption of both goods and services, but the negative impact will be worse in the case of services.Following such a change, the relative price of services will rise relative to the price of goods.The new budget line will move inward 3% along the Xaxisreflectingthefactthatafixedbudgetwillonlybeabletobuy97%ofthe previously affordable goods.The new budget line will move inward 5% along the Y axisreflectingthefactthatafixedbudgetwillonlybeabletobuy95%ofthe previouslyaffordableservices.Theneteffectissimilartoadecreaseinincome followed by a unilateral increase in the price of services. P4.6Budget Allocation.Consider the following data: Goods (G) Services (S) Units Total Utility Units Total Utility 0 0 0 0 1 100 1 70 2 160 2 124 3 210 3 175 4 250 4 220 Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 91 - 52755250 A.Constructa table showing themarginalutilityderivedfromtheconsumption of goods and services.Also show the trend in marginal utility per dollar spent (the MU/P ratio) if PG = $20 and PS = $15. B.Ifconsumptionoftwounitsofgoodsisoptimal,whatlevelofservices consumption could also be justified? C.Ifconsumptionoffiveunitsofservicesisoptimal,whatlevelofgoods consumption could also be justified? D.Calculate and explain the optimal allocation of a $100 budget. P4.6SOLUTION A. GOODS (G) SERVICES (S) Units Total Utility Marginal Utility MU/PG = MU/$20 Units Total Utility Marginal Utility MU/PS = MU/$15 0 0 -- -- 0 0 -- -- 1 100 100 5.00 1 70 70 4.67 2 160 60 3.00 2 124 54 3.60 3 210 50 2.50 3 175 51 3.40 4 250 40 2.00 4 220 45 3.00 5 275 25 1.25 5 250 30 2.00 B.S=4.When2unitsofgoodsarepurchased,thelastunitconsumedgenerates60 utils of satisfaction at a rate of 3 utils per dollar.Consumption of 4 units of services could be justified on the grounds that consumption at that level would also generate 3 utils per dollar spent on services. C.G = 4.When 5 units of services are purchased, the last unit consumed generated 30 utils of satisfaction at a rate of 2 utils per dollar.Consumption of 4 units of goods could be justified on the grounds that consumption at that level would also generate 3 utils per dollar spent on goods. Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 92 - D.G=2andS=4.Theoptimalallocationofa$100budgetinvolvesspending according to the highest marginal utility generated per dollar of expenditure.First, oneunitofgoodswouldbepurchasedsinceitresultsin5utilsperdollarspent.Then, three units of services would be purchased.Finally, single additional units of goods and services would be purchased.In total, $40 dollars would be spent on two units of goods, and $60 dollars would be spent on four units of services. P4.7IndividualDemand.Indicatewhethereachofthefollowingstatementsistrueor false and support your response. A.Anindividualdemandcurveshowstherelationbetweenpriceandquantity demanded, or shifts in demand from one demand curve to another. B.Theincome-consumptioncurveshowsmovementsalongademandcurveas income changes.

C.Fallingservicepricescauseincreasesinthedemandforservices,anda reduction in the quantity demanded of goods. D.The various market baskets that maximize utility at different prices for a given item trace out the consumer=s price-consumption curve. E.Inthecaseofinferiorgoods,income-consumptioncurvesandEnglecurves have a negative slope. P4.7SOLUTION A.False.Anindividualdemandcurveshowstherelationbetweenpriceandquantity demanded, or movement along the demand curve. B.False.Theincome-consumptioncurveshowsshiftsindemandfromonedemand curve to another as income changes. C.False.Falling service prices cause increases in the quantity demanded of services, and a reduction in demand for goods. D.True.Thevariousmarketbasketsthatmaximizeutilityatdifferentpricesfora given item trace out the consumer=s price-consumption curve. Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 93 - E.True.Inthecaseofinferiorgoods,income-consumptioncurvesandEnglecurves have a negative slope. P4.8IndividualDemandCurve.CatherineWillowslivesonaremoteranchnear BozemanMontana,andisanaviddownhillskierattheBigSkyskiresortduring wintermonths.Liftticketsareexpensive,however,andWillowsmustwatchher budgetcarefully.Lastseason,adailyliftticketcost$48andWillowsskiedtwo days per week.Using a 100-unit base for the amount of satisfaction (utility) gained from skiing one day per week, Willows estimates that the added value gained from skiing declines according to the following schedule: Number of Ski Days per Week Marginal Utility 0 0 1 100 2 80 3 60 4 40 5 20 A.If the cost/marginal utility trade-off displayed last season represents the most Willowsiswillingtopayforadailyliftticket,calculatethepricesatwhich she would be willing to ski one, two, three, four, and five days per week. B.Plot Willows= daily lift ticket demand curve. P4.8SOLUTION A.Last season, a daily lift ticket cost $48 and Willows skied two days per week. With MU = 80 for skiing two days per week, the implicit cost was 604per util (= $48/80). Atamaximumacceptablepriceof604perutil,Willows'maximumacceptable price varies according to the following schedule: Number of days spent skiing Marginal Utility MU = U/G Maximum Acceptable price at 604 per MU Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 94 - per week 0 -- -- 1 100 $60.00 2 80 48.00 3 60 36.00 4 40 24.00 5 20 12.00 D.Willows=lift ticket demand curve is: P4.9ConsumerSurplus.TheHeritageClubatHarbourTownofferselegant accommodationsfordiscriminatingvacationersonHiltonHeadIsland,South Carolina. A full list of ocean sports, a swimming pool, golf courses, tennis courts, an open-air hot tub, and a complete activities program are available.The resort is located in Sea Pines Plantation, with many activities just a few minutes away. More than15milesoftrailsforjoggingandbikingwindthroughouttheplantation. Specialty shopping and harbor-front dining are within walking distance. Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 95 - Likemanyvacationresorts,HeritageClubhasdiscoveredtheadvantagesof offeringitsservicesonanannualmembershiporAtime-sharing@basis.To illustrate,assumethatanindividualvacationer=sweeklydemandandmarginal revenue curves can be written: P=$6,500 - $1,250Q, MR= TR/Q = $6,500 - $2,500Q, where P is the price of a single week of vacation time, and Q is the number of weeks ofvacationtimepurchasedduringagivenyear.Forsimplicity,assumethatthe resort=s marginal cost for aweekofvacationtimeis$1,500,andthatfixedcosts are nil.This gives the following total and marginal cost relations: TC=$1,500Q, MC=TC/Q = $1,500. A.Calculatetheprofit-maximizingprice,output,profitlevel,andconsumer surplus assuming a per unit price is charged each customer. B.Calculate the profit-maximizing price, output and profit level assuming a two-part pricing strategy is adopted for each customer. C.Now assume that fixed costs of $4 million per year are incurred, and that 500 time-sharecustomers(Aowners@)areattractedwhenanoptimaltwo-part pricing strategy is adopted.Calculate total annual profits. P4.9SOLUTION A.If a single per unit price is charged, the profit-maximizing price is found by setting MR = MC, where MR=MC $6,500 - $2,500Q=$1,500 2,500Q=5,000 Q=2Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 96 - Attheprofit-maximizingquantityof2,theoptimalsingleunitpriceis$4,000and total profits equal $5,000 per customer because: P=$6,500 - $1,250(2) =$4,000 =TR - TC =$4,000(2) - $1,500(2) =$5,000 per customer Thevalueofconsumersurplusatastandardperunitpriceisequaltotheregion underthedemandcurvethatliesabovetheprofit-maximizingpriceof$4,000.Because the area of such a triangle is one-half the value of the base times the height, the value of consumer surplus equals: Consumer Surplus=2 [2 ($6,500 - $4,000)] =$2,500 per customer Inwords,thismeansthatatasingleperunitpriceof$4,000perweek,atypical individualwouldchoosetouse2weeksofvacationtimeattheresort,resultingin totalrevenuesof$8,000andtotalprofitsof$5,000percustomerfortheresort facility.Thefactthatconsumersurplusequals$2,500meansthatthetypical vacationer would have been willing to pay an additional $2,500 for these two weeks ofvacationtime.Thisisanamountaboveandbeyondthe$8,000paid.The customer received a real bargain. B.Asanalternativetochargingasingle-unitpriceof$4,000perweek,considerthe profits that could be earned using a two-part pricing scheme.To maximize profits, the resort would choose to charge a per-unit price that equals marginal cost, plus a fixed fee equal to the amount of consumer surplus received by each consumer at this price.Remember,thevalueofconsumersurplusisequaltotheregionunderthe demand curve that lies above the per-unit price.When the per-unit price is set equal to marginal cost, P = $1,500 and Q = 4 because P=MC Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 97 - $6,500 - $1,250Q= $1,500 Q=4 P= $6,500 - $1,250(4) = $1,500 At the per unit price of $1,500 and output level of 4, the value of consumer surplus equals: Consumer Surplus=2 [4 ($6,500 - $1,500)] =$10,000 per customer Thus, $10,000 is the maximum time-share or annual membership fee that the typical vacationerwouldpaytospend4weeksattheresortwhenamodestadditional Ause@chargeof$1,500perweekwaspaidforeachweekspentattheresort.It followsthattheprofit-maximizingtwo-partpricingschemeistochargeanannual time-shareormembershipfeeof$10,000peryearplusweeklyfeesof$1,500per week.Resortrevenuesof$16,000[=$10,000+(4$1,500)]percustomer representthefullvaluederivedfromatypicalcustomerstaying4weeksperyear, cover marginal costs of $6,000 (= 4 $1,500 ), and result in a $10,000 (= $16,000 - $6,000)profit contribution per customer for the resort. C.AsshowninpartB,theprofit-maximizingtwo-partpricingschemeistocharge each customer an annual time-share (or membership)fee of$10,000 per year plus Ause fees@of $1,500 per week.If fixed costs are present, the $10,000 amount per customer represents profit contribution before fixed costs rather than net profit. If the number of paying time-share subscribers is 500 per year, and fixed costs total $4 million per year, then total net profits equal: =Total revenue - Marginal cost - Fixed cost =500 [$10,000 + $1,500(4)] - 500 [$1,500(4)] - $4,000,000 =$1 million per year Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 98 - Itisinterestingtonotethattime-sharesandannualmembershipsaresoprofitable thatsuchmarketingarrangementshavelargelyreplacedpay-as-you-goresortsat many popular vacation destinations. P4.10Revealed Preference.On weekends during the summer months, Terry rents jetskis atthebeachonanhourlybasis.Lastweek,Terryrentedhisjetskisfor20hours per day at a rate of $50 per hour.This week, rentals fell to 15 hours per day when Terry raised the price to $55 per hour. Usingthesetwoprice-outputcombinations,therelevantlineardemandand marginal revenue curves can be estimated as: P = $70 - $1Q and MR = $70 - $2Q A.Set MR = 0 and solve for Q to calculate the revenue-maximizing price-output combination and profit level.How much are these maximum revenues? B.If marginal cost is $30 per hour, calculate the profit-maximizing price-output combination.Alsocalculaterevenuesandprofitsatthisprofit-maximizing activity level. (Remember MR = MC at the profit-maximizing activity level.) P4.10SOLUTION A.To find the revenue-maximizing price-output rental rate, set MR = 0, and solve for Q.Because TR=P Q =($70 - $1Q)Q =$70Q - $1Q2 MR=TR/Q MR=$70 - $2Q = 0 2Q=70 Q=35 At Q = 35, Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 99 - P=$70 - $1(35) =$35 =TR - TC = $70Q - $1Q2 - $30Q = $70(35) - $1(352) - $30(35) =$175 per day Total revenue at a price of $35 is: TR=P Q =$35 35 =$1,225 per day (Note:2TR/Q2 35 hours.) B.To find the profit-maximizing output level analytically, set MR = MC, or set M = 0, and solve for Q.Because MR=MC $70 - $2Q=$30 2Q=40 Q=20 At Q = 20, P=$70 - $1(20) =$50 Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 100 - Total revenue at a price of $50 is: TR=P Q =$50 20 =$1,000 per day =TR - TC = $70Q - $1Q2 - $30Q = $70(20) - $1(202) - $30(20) =$400 per day (Note:2/Q2 < 0, This is a profit maximum because total profit is falling for Q > 20.) CASE STUDY FOR CHAPTER 4 Why is Tracking Consumer Demand so Tough? Driven by movements in stock prices, the ratio of household wealth to personal income climbed dramatically in the late-1990s, peaked in early 2000, and then retreated considerably over the nexttwoyears.1 Economictheorytellsusthatincreasesinconsumerwealthtendtoraise householdspending;decreasesinwealthtendtolowerhouseholdspending.ThisAwealth effect@usuallyproducesanegativecorrelationbetweenhouseholdwealthandthepersonal savingrate,definedasthedifferencebetweenincomeandspending.Empiricalresearch suggest that an additional dollar of wealth leads to a permanent rise in the level of household consumption of about two to five cents, with the adjustment occurring gradually over a period of one to threeyears.Suchestimatesofthewealtheffectexplainedthebehaviorofconsumer demand and personal saving during the second half of the1990s fairly well. Assumingthat a dollarofadditionalwealthleadstoanincreaseinconsumptionofthreecents,onewould 1 Foradiscussionofthewealtheffectandhowitmakestrackingchangesinconsumer demanddifficult,seetheEconomicReportofthePresident(2004),88-102. (http://www.gpoaccess.gov/eop/) Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 101 - predictthattheenormousriseinwealthduringthelate1990swouldhavecausedthesaving rate to decline by about 4 percentage points.It did.However, the expected wealth effect failed tomaterializefollowingthestockmarketcrashof2000-02.Basedonexperience,thestock marketcrashshouldhavecausedasharpdropinconsumerdemandandareboundinthe personal saving rate of more than 2 percentage points. In fact, the personal saving rate has not risen materially (see Figure 4.13). Figure 4.13 here Economistsstilldon=tknowwhyconsumerdemandhasbeensostrong,andsavings ratessoweak,atthestartofthenewmillennium.Thegovernment=srecentfailureto accurately predict wealth effects tied to the stock market crash of 2000-02 adds to a long list of problems encountered in measuring and predicting changes in consumer demand.To illustrate, consider a simple but very tough to answer question: How much have consumer prices risen or fallen lately?When prices rise, there is the hard-to-decipher problem of sorting out payments forqualityimprovementsversussimplyhigherprices.Thinkabouthowmuchmoreyouare paying for monthly long-distance telephone service and you=ll see what economists mean when they complain about adjusting for quality improvements.Chances are that your monthly long-distance bill is higher today than it was five years ago, but your use of telephone services has changed dramatically over time. Fifteen years ago, commercial and personal use of FAX services skyrocketed as lawyers and business people sent clients and suppliers documents via FAX.While FAX services may be moreexpensivethantraditionalAsnailmail,@howdoesonevaluethebenefitsachievedin terms of more timely service?Over the next few years, use of telecommunications networks to sendinformationovertheInternetisboundtosoar.Whenmeasuringpricechangesfor householdtelecommunicationsservices,howdoesoneadjustInternetserviceprovider(ISP) charges for the value added by faster and more reliable service?Using high-speed broadband, itbecomespossibletosendandreceivevideoclipsandmovierentals.Illegalfilesharingof musicdownloadsalsobecomesquickandeasy.Howdoyoumeasurethequality,priceand valueoftheselegalandillegalservices?Whentelephoneserviceisdeliveredbytraditional cabletelevisioncompanies,howdoyouadjusttheamountofyourphonebillfortheadded benefitofApayperview@movies,ortheaddedconvenienceofhavingphoneandcablebills combined?Evenmeasuringthecostoftraditionalvoicetelephoneservicebecomesdifficult when local and long-distance services are combined and offered fora fixedcharge per month byasingleprovider,astheywillbeintheyearsahead.Everyyear,voicephoneservice customersmakemorefrequentandlongerphoneconversations.Themonthlybillpaidby consumers continues to rise, but the cost per minute has fallen precipitously for decades.Is the cost of voice telephone service going up or down? Howaboutthecostofapersonalcomputer?Whiletheaveragepricepaidby consumersforadesktopPChasfallenfromroughly$3,000tounder$1,000duringthelast decade,computercostsfellevenfasterthanyouthink.Dramaticimprovementsincomputing powerandeaseofusemakescomparingcomputerhardwareandsoftwarepricesovertime Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 102 - difficult,atbest.Thefactisthatyourdesktopcomputerisseveraltimesmorepowerfuland easier to use than a room full of computers in the 1970s. Problemsjudgingthepaceofproductivitygrowthandpricechangesfortelephone serviceandpersonalcomputersareonlytwoexamplesofthemanydifficultiesconfrontedby government statisticians.The basic problem is that admittedly imperfect government-provided estimates increasingly involve errors and bias.Government statisticians are slow to recognize the effects of new technology and better products.Efforts to reduce the burden of paperwork on business have also made it more difficult to gather detailed data in a timely fashion.With help from leading manufacturers, the BLS revised its methods for calculating computer price indexes by taking into account increases in computing speed.As a result, computer prices adjusted for quality changes are plungingata double-digit rateperyear.Inmostotherareas,thetaskof adjustingpriceindexesforchangesinproductqualityiswoefullyinadequate.These measurementproblemsarecompoundedbythefactthattherapidlyexpandingservicesector has created almost all of the economy's new jobs, and productivity measurement in services is treacherously difficult.Without accurate measures of product quality and worker productivity, tracking changes in consumer demand and consumer prices is impossible. A.Canyouthinkofreasonswhyconsumerdemandremainedunusuallystrong following the stock market crash of 2000-02? B.In addition to consumers, what other important contributors add to national savings and the pool of resources available for investment? C.Whyistheamountofnationalsavingsandthepoolofresourcesavailablefor investment important to consumers? D.Free economic information is available on the Internet from the Statistical Abstract of the United States (http://www.census.gov/statab/www/) and the Economic Report ofthePresident(http://www.gpoaccess.gov/eop/).Unfortunately,thisimportant information is often reported with a lag ofone to two years or more.What can be donetospeedthedeliveryofgovernmentstatisticsthatbettermeasurechangesin consumer demand and consumer prices? CASE STUDY SOLUTION A.According to theEconomic Report of the President(2004),apotentialexplanation for the unusually strong consumer demand in the period following the stock market crashof2000-02isthathouseholdsraisedconsumptioninanticipationofastrong improvementinthelabormarketthatwouldbolsterincome.Unusuallystrong consumer demand may also have been fueled by a wave of low-cost home mortgage Consumer Demand Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 103 - refinancingstemmingfromacombinationofhistoricallylowinterestratesand technological advances that have made such transactions easier.Another possibility isthattheavailabilityoflow-interest-rateloansoncarsandotherbigticketitems spurredhouseholdstoreplacecarsandotherdurablegoodsearlierthanthey otherwise might have. B.Itisimportanttorecognizethatconsumersavingisonlyonecontributortothe amount of total saving in the overall economy.Corporations also save in the form of retained earningsCthe difference between after-tax profits and dividends.While retained earnings as ashare of GDP fellduring the late-1990s, they rose following thecrashof2000-02.Thisuptickincorporatesavinghasthepotentialtoreplace some of the lost consumer savings during the post-crash period.National saving is the sum of private saving by households andcorporations plus government saving.GovernmentsavingisequaltotheFederalbudgetsurplusplusthestateandlocal governmentbudgetsurpluses.Nationalsavingroseasafractionof(GDP)during the 1990s, but has fallen sharply since 2000.As a fraction of GDP, national savings nowstandsatthelowendofitsrangesinceWorldWarII.Althoughboth government saving and private saving are above historic lows, the fact that they are both low at the same time has led to the low level of national saving. C.Nationalsavingisimportantbecauseitrepresentstheportionofourcountry=s currentincomethatisbeingsetasideforinvestmentinnewcapital.Inparticular, national saving plus the net capital inflow from abroad equals domestic investment. Greater saving and investment today boost future national income, add to economic growth, and bolster future consumption possibilities.To increase national saving, it isnecessarytorestraingovernmentspending,increasethepropensityof corporations to retain earnings for future investment, and raise household savings. D.Tobettermeasuretrendsinconsumerdemand,consumerprices,andproductivity growth,rapidadvancesininformationtechnologymustbeefficientlyutilized.To bettermeasureconsumerpricechanges,electronicscanninginformationmustbe utilized.Price and production indexes must also reflect quality adjustments for new products and technologies.Surveys of changes in employment must also be refined. Insome instances, government spending on datagatheringandanalysisneedsto beincreased.Americansandtheirgovernmentsimplyneedtoknowwhat'sreally happening in the economy. If the federal and state governments prove incapable of providing high quality statisticalinformationinatimelymanner,betterimitationofprivate-sectordata gathering and analysis methods may not be sufficient.In that case, it may become necessarytoconsideranoutsourcingofsomedatagatheringanddataanalysis Chapter 4 Presented by Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance. - 104 - responsibilitiestotheprivatesector.Forexample,theBureauofLaborStatistics already outsources responsibility for monitoring Leading Economic Indicators to the ConferenceBoard.TheConferenceBoardisapremierbusinessmembershipand researchnetworkworldwidethatlinksexecutivesfromdifferentcompanies, industries and countries. The Conference Board has become a leader in helping top executives build strong professional relationships, expand their business knowledge, andfindsolutionstoawiderangeofbusinessproblems.Foundedin1916,the Board's twofold purpose is to improve the business enterprise system and to enhance the contribution of business to society.A not-for-profit, non-advocacy organization, The Conference Board's membership includes more than 2,900 companies and other organizations in 65 countries. TheBLS-ConferenceBoardpartnershipmayformthebasisforother beneficial public sector-private sector alliances with the potential to speeddelivery of high-quality statistical information to the public.