Price_Elasticity_and_Supply_and_Demand

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. |Change in equilibrium | | | |Explain your answer. | | |Frozen orange crops in California |Orange juice |Supply (left)—Not as many available |Price will increase and quantity will | | | |oranges to offer consumers. |decrease. | |Hurricanes in the Gulf Coast |Oil |Supply Oil supply goes down so price |Supply goes up so price goes down | | | |increases | | |Cost of cotton decreases |Clothing |Supply and Demand More cotton supply so|Price will increase and quantity will | | | |price goes down on clothing |decrease | |Technology improves efficiency in |Pasta |Supply more pasta available to |Less pasta available | |pasta manufacturing | |consumers | | 1. What do substitutes refer to in economics' Give an example of two substitutes. A substitute good is the good a consumer buys more of when another good becomes less affordable. Similarly it is the factor of production a firm buys more of when another firm becomes less affordable. The classic example is margarine and butter. People buy more margarine as the price of butter increases. 2. Define “Price Elasticity of Demand.” Give an example. "Price" Elasticity of Demand which is the measure of responsiveness in the quantity demanded for a commodity as a result of change in price of the same commodity. Some goods are elastic or inelastic. Like a life saving surgery would be extremely inelastic (you would want to do it at any price) while a dollar would be extremely elastic (you wouldn't pay two dollars for a dollar, etc). Most goods are somewhere in between. 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 Inelastic • Gasoline sold at a local gasoline station Elastic • Hotel rooms for people planning a vacation Elastic • Hotel rooms for people on business to meet an important client Inelastic 4. Define the Law of Demand and the Law of Supply. Give an example for each. law of demand 1.it states that consumers buy more of a good when its price decreases and less when its price increases; The greater the amount to be sold, the smaller the price at which it is offered must be in order for it to find purchasers a consumer will purchase more goods if the price of the goods decrease. law of supply the law of supply is the tendency of suppliers to offer more of a good at a higher price when the supply goes down the price goes up.