Week_2_Checkpoint_Xeco212

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 |Tourism |Demands shifts left. Tourist will stay|Price and quantity both decrease | | | |away from these areas. | | |Cost of cotton decreases |Fabric |Supply shifts right. Production costs |Price decreases quantity increases | | | |decrease. | | |Technology improves efficiency in |Pasta |Supply shifts right. Pasta supply |Price decreases, quantity increases. | |pasta manufacturing | |increases. This is a result of | | | | |technological improvements | | 1. What do substitutes refer to in economics' Give an example of two substitutes. A substitute good is the good the consumer purchases more of when an item becomes too expensive. Similarly it’s the factor of the production a firm buys more of when another becomes less affordable. For example real butter is more expensive than margarine. But they also include off brand items. There are lucky charms that are made by general foods and then there is marshmallow stars who is made by Great Value which is a Wal-Mart brand and half the price. 2. Define “Price Elasticity of Demand.” Give an example. “Price elasticity of demand is the quantitive measure of consumer behavior that indicates the quality of demand of a product or service depending on its increase or decrease in price.” For example Gasoline, is elastic because the price is dependent on the supply and demand, and also the price of a barrel of oil. When oil rises, gas skyrockets. (1999). Answer Note. Retrieved from http://www.answers.com/topic/price-elasticity-of-demand 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 because there is no substitute. People have only one choice for gasoline if their cars are not flex fuel. The necessity for gas is crucial because people have to drive to get to work. • Gasoline sold at a local gasoline station It is inelastic because people can’t change to substitutes in the short run. • Hotel rooms for people planning a vacation It’s elastic because increase in prices will cause tourist to search for substitutes. • Hotel rooms for people on business to meet an important client It’s inelastic. A meeting with an important 4. Define the Law of Demand and the Law of Supply. Give an example for each. Supply and demand is the basic premise that there is a supply of a commodity and depending on what the demand is that sets the price point. Apple brought out the iPad in 2009. When they were first release each retailer was allotted a specific amount. Apple set the price point to prevent any gouging of the product. Retailers couldn’t sell before a specified time and weren’t allowed to oversell or take orders for the product. The supply didn’t in anyway meet the demand. Retailers sold out of the iPad within hours, and retailers weren’t replenished for weeks because the demand was too high for production. So when they did this, they didn’t have a significant supply to meet the demand.