...Price Elasticity and Supply & Demand Fill in the matrix below and describe how changes in price or quantity of the goods and services affect either supply or demand and the equilibrium price. Use the graphs from your book and the Tomlinson video tutorials as a tool to help you answer questions about the changes in price and quantity Event Market affected by event Shift in supply, demand, or both. Explain your answer. Change in equilibrium Frozen orange crops in California Orange juice Supply (left)—Not as many available oranges to offer consumers. Price will increase and quantity will decrease. Hurricanes in the Gulf Coast Oil and seafood Supply (left)—Not as much oil or seafood available to offer consumers. Price will increase and quantity will decrease. Cost of cotton decreases Clothing Supply (right) – More clothing available to offer consumers. Price will decrease and quantity will increase. Technology improves efficiency in pasta manufacturing Pasta or pasta related products (supermarket foods, restaurant foods) Supply (right) – More pasta or pasta related products available to offer consumers. Price will decrease and quantity will increase. 1. What do substitutes refer to in economics? Give an example of two substitutes. A substitute refers to an alternate good that consumers are able to purchase when the original good had a price increase. Examples of substitutes are when consumers buy margarine when the price of butter increases or buy miracle whip when the...
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...Supply and Demand and Price Elasticity Paper Betty Hargrove ECO/212 January 30, 2013 Vivek Singhal Introduction After careful evaluation of our daily commodities we have chosen, soap, oil, sugar, salt, tissue, flour, toothpaste, deodorant, electricity, and wheat. These lists of commodities are necessary in a basic style of life. Our chosen product to focus on throughout our paper is sugar. We will address the supply and demand shift of sugar in a market economy. Furthermore, we will address supply and demand and price elasticity as well as whether our chosen commodity is a necessity or a luxury. Supply and Demand Shift There are limited explanations of why the demand and shifts in sugar vary. One of these reasons is because of the federal tariffs that are put on sugar. A tariff or tax on the import or even export increases the price and make it less in demand. No one wants to pay more for anything that we were paying less for a week ago. Also now there are a few different substitutes of sugar then using the real things. There are brands such as Equal, Splenda, and Sweet and Low. These are known as artificial sugar substitutes. These artificial sugar substitutes are sometimes found in food that we consume daily depending on our likes. Items that are, labeled as “diet” or “sugar free” use artificial sweeteners. There is “sugar free gum” and “diet soda”. These products typically have artificial sweeteners. The demand for the sugar is how much the consumers are willing...
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...provides an economic analysis of South African Maize. The objective of the assignment is to find a non –governmental price regulated commodity and examine the determinants of demand and supply, as well as prices, and elasticities of the commodity Table of Contents Introduction: 2 The determinants causing shifts in demand and supply: 3 Price movements: 4 Price and/or income elasticities: 4 Conclusion: 5 References: 5 Introduction: In Africa, South Africa’s economy is one of the largest (one-quarter) contributor’s to the nation’s economic Gross Domestic Product. Even though the manufacturing sector is now a sizeable donor to the South African economy, commodities do still provide an ample section to the economy (Simpson, 2012). A commodity is known as a raw material this is exchanged (bought and sold) by trade partners. It can also be a primary agricultural product (Parkin et al., 2008: ). South Africa’s agricultural sector does not have a large impact on a global scale upon the world’s agricultural trade. Although does export cereal grains in large quantities as well as stocks the country with cereal grains’ seeing as it is one of South Africa’s staple foods (Simpson, 2012). In economics, questions result from people wanting more than they can get. What is available for individual’s consumption is limited by time; incomes received; and by the prices of the goods and services people must pay. The goods and services available are constrained by the limited resources...
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...Chapter 4 Elasticity • • • • I. The price elasticity of demand measures how strongly demanders respond to a change in the price of a good. The price elasticity of demand can be used to make quantitative predictions of how changes affect the price and quantity demanded of a good. The income elasticity of demand measures how strongly demanders respond to a change in income, and the cross elasticity of demand measures how strongly demanders respond to the change in the price of another good. The price elasticity of supply measures how strongly suppliers respond to a change in the price of a good. Price Elasticity of Demand • In general, elasticity measures responsiveness. The price elasticity of demand measures how responsive demanders are to a change in the price of the good. This information is often useful for both businesses and governments. • The price elasticity of demand is a units-‐free measure of the ...
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...C h a p t e r 4 ELASTICITY Topic: Calculating Elasticity Skill: Conceptual Price Elasticity of Demand 4) Topic: The Price Elasticity of Demand Skill: Conceptual 1) The slope of a demand curve depends on A) the units used to measure price and the units used to measure quantity. B) the units used to measure price but not the units used to measure quantity. C) the units used to measure quantity but not the units used to measure price. D) neither the units used to measure price nor the units used to measure quantity. A) B) C) D) When the quantity of coal is measured in kilograms instead of pounds, the demand for coal becomes more elastic. less elastic. neither more nor less elastic. undefined. Answer: C Topic: Calculating Elasticity Skill: Recognition 5) The price elasticity of demand equals A) the change in the price divided by the change in quantity demanded. B) the change in the quantity demanded divided by the change in price. C) the percentage change in the price divided by the percentage change in the quantity demanded. D) the percentage change in the quantity demanded divided by the percentage change in the price. Answer: A Topic: The Price Elasticity of Demand Skill: Conceptual 2) The price elasticity of demand depends on A) the units used to measure price and the units used to measure quantity. B) the units used to measure price but not the units used to measure quantity. C) the units used to measure...
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...4 Elasticity 4.1 Price Elasticity of Demand 1) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a A) 2 percent decrease in quantity demanded. B) 20 percent decrease in quantity demanded. C) 5 percent decrease in quantity demanded. D) 2 percent increase in quantity demanded. E) 20 percent increase in quantity demanded. Answer: B Diff: 2 Type: MC Topic: Price Elasticity of Demand 2) The price elasticity of demand is a units-free measure of the responsiveness of the ________ when all other influences on buying plans remain the same. A) quantity demanded to a change in the price of a substitute or complement B) quantity demanded to a change in income C) quantity demanded of a good to a change in its price D) price to a change in quantity demanded E) none of the above Answer: C Diff: 1 Type: MC Topic: Price Elasticity of Demand 3) The concept used by economists to indicate the responsiveness of the quantity demanded of a good to a change in its price is the A) cross elasticity of demand. B) income elasticity of demand. C) substitute elasticity of demand. D) price elasticity of demand. E) elasticity of supply. Answer: D Diff: 1 Type: MC Topic: Price Elasticity of Demand 4) If a 10 percent rise in price leads to an 8 percent decrease in quantity demanded, the price elasticity of demand is A) 0.8. B) 1.25. C) 8. D) 0.125. E) 80. Answer: A Diff: 2 Type: MC Topic: Price Elasticity...
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...INTRODUCTION TO ECONOMICS Elasticity & Taxation Blanquerna-Universitat Ramon Llull Salvador Illa Roca 2014-2015 1 Current events 2 3 4 Elasticity 5 Where we are… 1. 2. 3. 4. In the subfield of Microeconomics Studying the S&D model… …which describes how competitive markets work Have studied… 1. how much consumers & producers gain from participation in the market 2. Why governments intervene in markets and what are the consequences 5. Will focus on… 1. What is elasticity 2. taxation 6 Swine Flu Swine Flu Swine Flu http://www.nytimes.com/2009/04/28/health/28flu.html?ref=health Swine Flu 1. What happens with the DC? 2. What happens with the SC? 3. What happens with the price? Why? 4. Should Government intervene? Swine Flu European Council, Parliamentary Assembly Summary On 11 June 2009, the World Health Organization (WHO) officially declared “Pandemic (H1N1) 2009”. The way in which the H1N1 influenza pandemic has been handled, not only by WHO, but also by the competent health authorities at the level of the European Union and at national level, gives rise to alarm. Some of the consequences of decisions taken and advice given are particularly troubling, as they led to distortion of priorities of public health services across Europe, waste of large sums of public money and also unjustified scares and fears about health risks faced by the European public at large. Grave shortcomings have been identified regarding...
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...4 Elasticity: A Measure of Responsiveness Chapter Summary This chapter explored the numbers behind the laws of demand and supply. The law of demand tells us that an increase in price decreases the quantity demanded, ceteris paribus. If we know the price elasticity of demand for a particular product, we can determine just how much less of it will be purchased at the higher price. Similarly, if we know the price elasticity of supply for a product, we can determine just how much more of it will be supplied at a higher price. Here are the main points of the chapter: • The price elasticity of demand—defined as the percentage change in quantity demanded divided by the percentage change in price—measures the responsiveness of consumers to changes in price. • Demand is relatively elastic if there are good substitutes. • If demand is elastic, the relationship between price and total revenue is negative. If demand is inelastic, the relationship between price and total revenue is positive. • The price elasticity of supply—defined as the percentage change in quantity supplied divided by the percentage change in price—measures the responsiveness of producers to changes in price. • If we know the elasticities of demand and supply, we can predict the percentage change in price resulting from a change in demand or supply. Applying the Concepts After reading this chapter, you should be able to answer these four key questions: 1. How does the price elasticity of demand vary over time? 2...
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...Exercise 6 Solution Chapter 6 Elasticity: The Responsiveness of Demand and Supply 6.1 The Price Elasticity of Demand and Its Measurement 1) Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price of a related good. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to a change in buyers' incomes. Answer: C Comment: Recurring Diff: 1 Page Ref: 168-169/168-169 Topic: Price Elasticity of Demand Objective: LO1: Define price elasticity of demand and understand how to measure it. AACSB: Reflective Thinking Special Feature: None 2) If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A) will increase by 45 percent. B) will increase by 5 percent. C) will decrease by 45 percent. D) will decrease by 5 percent. Answer: C Comment: Recurring Diff: 2 Page Ref: 168-169/168-169 Topic: Price Elasticity of Demand Objective: LO1: Define price elasticity of demand and understand how to measure it. AACSB: Analytic Skills Special Feature: None 3) If demand is inelastic, the absolute value of the price elasticity of demand is A) one. B) less than one. C) greater than one. D) greater than the absolute value of the slope of the demand curve. Answer: B Comment:...
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...Market Demand The demand for a good or service is defined as quantities of a good or service that people are ready to buy at various prices within some given time period, other factors besides price held constant. And law of demand is the inverse relationship between price and the quantity demanded. It means the higher the price, the lower quantity demanded and vice-versa. A change of demand can be affected by two factors. First, the changes of price result in the changes in quantity demanded. In this term, change occurs only at the point in the curve. Curve line does not shift. Second, changes in the non-price determinants result in changes in demand. This led to curve shifts to the left or to the right. There are 5 factors of non-price determinants of demand. Here are: 1. Taste and preferences. There are many factors that trigger these factors include advertising, promotion, and even the government reports related to specific goods or services. 2. Income. Buying power is closely related to the demand of a product. Increased public income means demand also increases and vice versa. 3. Price of related products. -> Substitute or complementary products. 4. Future expectations. 5. Number of buyers. Market Supply Definition of supply is Quantities of a good or service that people are ready to sell at various prices within some given time period, other factors besides price held constant. The difference between demand and supply is the word sell for...
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...this framer’s dilemma using demand and supply analysis with a relevant example. Answer: The Farmer’s Dilemma: The Farmer’s Dilemma For many crops, a strange situation arises a bad crop year results in a good year for farm incomes, and a good crop year results in a bad year for farm incomes. How can this be? Price elasticity gives us the answer: Bad crop year: supply decreases, prices for farm products rise, but quantity demanded doesn’t fall very much. The quantity demanded of farm products is not very responsive to changes in prices Good crop year: supply increases, prices for farm products fall, but quantity demanded doesn’t increase very much. The quantity demanded of farm products is not very responsive to changes in prices It is easy to show this with a graph. But first we need yet another concept: Total Revenue = Price x Quantity Elasticity and Total Revenue: Elasticity and Total Revenue TR = P x Q If P goes down Q goes up, but what happens to TR? If P goes up Q goes down, but what happens to TR? Elasticity can answer the question…. Elasticity to the Rescue….: Elasticity to the Rescue…. Ep > 1 Responsive or elastic %ΔQd (10%) > %ΔP (5%) if P goes down (up) total revenue goes up (down) Ep < 1 Not responsive or inelastic %ΔQd (5%) < %ΔP (10%) if P goes down (up) total revenue goes down (up) Ep = 1 unit elastic %ΔQd (5%) = %ΔP (5%) if P goes down (up) total revenue stays the same The Farm Example: The Farm Example During bad crop years, prices rise and quantity falls (but...
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...Elasticity Introduction This assignment will cover the core topic of economics i.e. Elasticity. Elasticity is concern to two major economic factors without no economy can survive, which are Demand and Supply because if we are not familiar with the demand and supply how can we come to know that how much demand of a particular item needs in the market and how much supply have to prepare to earn the revenue or maximum profit. Therefore, first, the theoretical concept of elasticity regarding demand and supply will be explained and then it will be applied on UAE economy. Body: Theoretical Concept of Elasticity Elasticity can be defined as the degree of responsiveness in quantity demanded and quantity supplied in order to changes in price or to one of its determinants. These are some terms relating to measure the elasticities in term of demand and supply: Price elasticity of demand, Arc elasticity of demand, Income elasticity of demand, Cross elasticity of demand, Price elasticity of supply (Gans, 2011). Price Elasticity of Demand: It can be stated as to what extent or to what degree, quantity demanded changes as an outcome of a change in price is called elasticity of demand. If we divide the marginal demand function by the average demand function (Gans, 2011), we will get elasticity of demand. Mathematically representation: Measurements of Elasticity of Demand (E) There are three methods adopted to measure the Elasticity of Demand 1. Total Quality Method This...
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...that consumers are willing to buy at different prices is the A) elasticity B) market demand curve C) market supply curve D) market equilibrium 2. The law of demand states : A) that price and quantity demanded are inversely related. B) that price and quantity demanded are inversely related, holding all other factors that influence demand fixed. C) that demand for a good comes from the desire of buyers to directly consume the good itself. D) an increase in demand results in an increase in price. 3. Which of the following statements best illustrates the law of demand? A) When the price of pepperoni rises, the demand for pizza falls. B) When the weather gets hotter, the quantity demanded of ice cream rises. C) When the price of lemons falls, the demand for lemonade rises. D) When the price of eggs rises, the quantity demanded of eggs falls. 4. Which of the following is not typically a factor held constant when deriving a demand curve for clothing? A) consumer income. B) the price of clothing. C) the price of other goods. D) consumer tastes. 5. What is the difference between a derived demand curve and a direct demand curve? A) Derived demand is unknown, whereas direct demand is known. B) Derived demand is unobservable, whereas direct demand is observable. C) Derived demand is demand determined by the demand for another good, whereas direct demand is demand for a good itself. D) Derived and direct demand are both terms referring to the same thing. ...
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...CHAPTER 2 THE BASICS OF SUPPLY AND DEMAND QUESTIONS FOR REVIEW 1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level? Assume the supply curve is fixed. The unusually hot weather will cause a rightward shift in the demand curve, creating short-run excess demand at the current price. Consumers will begin to bid against each other for the ice cream, putting upward pressure on the price. The price of ice cream will rise until the quantity demanded and the quantity supplied are equal. [pic] Figure 2.1 2. Use supply and demand curves to illustrate how each of the following events would affect the price of butter and the quantity of butter bought and sold: a. An increase in the price of margarine. Most people consider butter and margarine to be substitute goods. An increase in the price of margarine will cause people to increase their consumption of butter, thereby shifting the demand curve for butter out from D1 to D2 in Figure 2.2.a. This shift in demand will cause the equilibrium price to rise from P1 to P2 and the equilibrium quantity to increase from Q1 to Q2. [pic] Figure 2.2.a b. An increase in the price of milk. Milk is the main ingredient in butter. An increase in the price of milk will increase the cost of producing butter. The supply curve for butter will shift from S1 to S2 in Figure 2.2.b...
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...Chapter 7: Elasticity 1 What you will learn in this chapter 1. Define and measure elasticity of demand and elasticity of supply. 2. Determine the relationship between demand elasticity and total revenue. 3. Understand the factors that determine elasticity of demand and elasticity of supply. Punchline • Imagine that some event drives up the price of gasoline (think about two examples) • How would consumers respond to the higher price? • By how much would consumption of gasoline fall? Answer to the gasoline question • Many studies have examined consumers’ response to gasoline prices. • Consumption responds more in the long run than it does in the short run. • A 10% increase in the gasoline prices reduces gas consumption by about 2.5% after a year and about 6% after five years. Roadmap 1. Elasticity of demand 2. Measurement of price elasticity 3. Elasticity and total revenue 4. Determinants of price elasticity of demand 5. Other demand elasticity measures 6. Elasticity of supply 7. Determinants of price elasticity of supply Elasticity of demand • The price elasticity of demand is a measure of how much consumers respond to changes in price. • Total revenue that one receives from selling a good is the price of the good times the quantity sold: TR = P*Q • Seller’s dilemma: raise or lower the price? • Can be solved by knowing the elasticity of demand. Measurement of price elasticity • Problem: we cannot measure consumers’ responsiveness to changes in price by looking at...
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