Price Elasticity and Supply & Demand Price Elasticity and Supply & Demand
Associate Level 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
Seafood Supply (left) Not as much seafood to supply stores and restaurants for consumers. Prices will increase as quantity decreases.
Cost of cotton decreases
Clothing The supply of cotton fabrics does down Prices of fabric will go up until the quantity of cotton crops go up.
Technology improves efficiency in pasta manufacturing Pasta Supply of pasta will increase due to the improvements in technology. Prices decreases and quantity increases
1. What do substitutes refer to in economics? Give an example of two substitutes. Substitutes refer to pairs of goods that are used in place of each other. Our reading gives us a good example of hot fudge and ice cream. If the price of hot fudge goes down then the demand for ice cream will increase. (Principles of Economics, 2007)
2. Define “Price Elasticity of Demand.” Give an example.
Price Elasticity of Demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price. (Principles of Economics, 2007) An example is coffee if the price of coffee goes up then the consumer could buy tea instead of coffee. This make coffee elastic.
3. Determine if the demand for the following
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
Seafood Supply (left) Not as much seafood to supply stores and restaurants for consumers. Prices will increase as quantity decreases.
Cost of cotton decreases
Clothing The supply of cotton fabrics does down Prices of fabric will go up until the quantity of cotton crops go up.
Technology improves efficiency in pasta manufacturing Pasta Supply of pasta will increase due to the improvements in technology. Prices decreases and quantity increases
1. What do substitutes refer to in economics? Give an example of two substitutes. Substitutes refer to pairs of goods that are used in place of each other. Our reading gives us a good example of hot fudge and ice cream. If the price of hot fudge goes down then the demand for ice cream will increase. (Principles of Economics, 2007)
2. Define “Price Elasticity of Demand.” Give an example.
Price Elasticity of Demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price. (Principles of Economics, 2007) An example is coffee if the price of coffee goes up then the consumer could buy tea instead of coffee. This make coffee elastic.
3. Determine if the demand for the following
References: Mankiw, N. (2007). Principles of Economics. Mason, OH: South-Western Cengage Learning.