Unit 2 Scenario - Essay Example

Southport Project Scenario – Gordon Gourmand and Northern Lake Foodstore Two grocery stores are located in the immediate vicinity of Southport, bothare equally close to the residence, Gordon Gourmand and Northern Lake Foodstore. Gordon Gourmand offers the following: all necessary staples are available at slightly higher cost, not common gourmet items, organic and natural products, and wide range of health foods. Approximate cost of a bag of groceries is $40. Northern Lake Foodstore, on the other hand offers a wide range of national brand products at a $25 average cost of a bag of groceries.

At $200 budget for groceries per month, considering the lower price, more products will be bought at lower price in the Northern Lake Store. Preferring organic, natural and health foods, Gordon Gourmand however can cater to my choices. Having these options, 3 bags of groceries at a cost of $120 will be bought from Gordon Gourmand. The remaining amount from the budget will be spent in Northern Lake Foodstore and will be more than enough for the same number of bags of groceries costing $75. $5 dollars worth of groceries can also buy a considerable number of goods from the same store.

Supposing, my income increases by 20 percent hereby raising my budget for groceries to $250. This change in income will also bring changes in the budget line for groceries. Having more money to cater to my preference of products, instead of just three bags, more groceries, probably 3 bags more will added to the groceries from Gordon Gourmand. These additional bags from the Gordon Gourmand will mean fewer groceries from the other store. My favored groceries from Gordon Gourmand therefore are normal goods.

These are basis commodities which are necessary as required by my lifestyle. As the income increases, it is but natural to buy more of such products instead of alternative goods, those from Northern Lake Foodstore. If the price of a bag of groceries at Northern Lake Foodstore decreased to $20 per bag, and assuming that my income did not increase, the bulk of my groceries will be coming from the store. This price change however will not affect my budget line for groceries and surely it does not affect my previous choice of groceries.

The 3 bags of preferred groceries will still be from Gordon Gourmand. However since the price of the commodities from Northern Lake Foodstore decreased, instead of just 3 bags of alternative goods, about one more bag of groceries will be bought at the store. Looking at the increase in the number of bags purchased due to the decrease in price, the demand is price elastic. The price decreased by 20 percent, the demand for groceries increased by more than 20 percent.Reference: