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Economics Essay

595 words - 3 pages

Axia College Material
Appendix B

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 | Businesses, homes | Businesses have been damaged and cannot sell their products or goods. | Prices will increase and quantity will decrease. |
Cost of cotton decreases | Cotton ...view middle of the document...

Another example the price of frosted flakes goes up people will buy more corn flakes.

2. Define “Price Elasticity of Demand.” Give an example. When price goes up people tend to do less of. For example going to the doctor if a visit to the doctor goes up then people will not go to the doctor as often as they use too unless it is a serious matter.

3. Determine if the demand for the following products is price elastic or price inelastic, and explain your answer. In your explanation, be sure to include how the necessity of a good and the availability of substitutes affect the price elasticity of demand in each of these specific cases:

* Gasoline as a commodity-price elastic because people need gas no matter if the price goes up down it doesn’t matter people will pay the price for gas and you cannot substitute it.

* Gasoline sold at local gasoline station-price elastic because once again this good is a need. I live in a small town so we depend on our local gas stations.

* Hotel rooms for people planning a vacation-price inelastic because it is not so much of a need and I believe the quantity demand doesn’t change too much because of price when it comes to most hotels, but it can be substituted by other hotels.

* Hotel rooms for people on business to meet important client- price elastic because for business it’s a need and they will pay whatever price they have to for the quantity, other hotels can substitute other hotels.

4. Define the Law of Demand and the Law of Supply. Give an example for each.
The price of any good adjusts to bring the quantity of supplied and demanded for the good into balance. Law of demand for example if it is cold outside the demand for soup will go up but the supply is unchanged because it does not affect the company who sells it, the price will rise and the quantity of soup sold.
Law of supply if a storm destroys home grown strawberries the price increases, the demand decreases and the quantity of how strawberries sold falls.

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