The case write-ups involve applications of economic analysis in examining managerial problems. Intended to provide increased familiarity with key components of the course material, the write-ups will be submitted on an individual basis. For each assignment, specific questions will be provided.
- Rosenwald, M. (2011, January 20). Borders Struggles Amid Rapid Changes in Book Sales. The Washington Post.
As you know, Borders, the bookstore company, filed for bankruptcy and subsequently went through the liquidation process in 2011. The accompanying article, “Borders Struggles Amid Rapid Changes in Book Sales,” provides information on some of the factors that led up to the bankruptcy. For our purposes, an important element involves changes in the demand for books and the services provided by traditional retailers of books. The material provides the basis for a case study dealing with key aspects of the economics of demand.Please provide brief responses to the following questions:
1a. Describe (a) the idea of a demand function and (b) the use by managers of demand functions.1b. From the perspective of bookstore owners and managers, identify the main variables that should be included in a demand function for books sold through traditional bookstores. Specifically, identify the dependent variable and three (3) independent variables. For each independent variable, indicate the effect you expect it to have on the dependent variable.2. From the factors you identified, select one you believe may be particularly important. Include this variable and the average price of books sold through bookstores as the only two (2) independent variables in a streamlined version of the demand function.2a. In a graph that depicts the supply and demand curves for books bought at bookstores, illustrate the impact of a change in the value of the variable you selected on the price of books. (You may submit the graph using MS Word tools or a handwritten scan submitted to the dropbox below).2b. Briefly explain the relationships depicted, distinguishing between a change in demand and a change in quantity demanded.3a. Describe what the price elasticity of demand measures.3b. Discuss how managers of bookstores can use estimates of the price elasticity of demand in making decisions.4. Based on your analysis, judge whether a more effective analysis of demand might have enabled Borders to avoid the ultimate outcome. Briefly explain the basis of your judgment.