Economics Supply and Demand

In: Business and Management

Submitted By magriver
Words 2995
Pages 12
Elastic and inelastic demand

Elastic and inelastic demand
Task A
1. Elasticity of Demand measures sensitivity of the demand for a good to a price change. If the price of a good matters little, a change in the price of that good will have a small impact on one’s willingness to sell or buy and this would indicate an inelastic situation. However, if a small change in prices causes substantial changes in one’s willingness to buy or sell, the good is said to be elastic. McConnell, Brue, and Flynn (2012) note that when demand is elastic a decrease in price will increase total revenue because even though the price is less the additional goods sold make up the difference. Conversely, if the demand is inelastic, price decreases reduce total revenue. When the percent of increase or decrease in the price of a good is equal to the demand percentage the case is unit elastic.
2. Cross-price elasticity of demand measures the sensitivity of quantity demanded of a good when the price changes on another good. When two goods are substitutes, the price of one good increases the demand for another good. Airlines A and B have routes that are the same. As airline, A raises the price of their tickets consumers will likely change to airline B. This is a simple explanation of substitution. A good is considered a complement to another when the demand of product A is increased after the price of product B is decreased.
3. Income elasticity measures the relationship between a change in demand for a good and the change in income. Income elasticity is calculated by dividing the percent of change in demand by the percentage change in income. A very high-income elasticity provides that as income increases the consumer will buy more of a product or at an increased price. Low price elasticity is just the opposite, as income reduces the demand on a product is fractionally…...

Similar Documents

Supply and Demand

...Essay 1—ECONOMICS I The fluctuations of the sales of products and services in our economy can be traced to the basic laws of supply and demand that govern our society today. The prestigious economist Adam Smith once proposed that society was governed by an “invisible hand” which worked to self-regulate the marketplace in the midst of the ambitious goals of sellers and consumers alike. It is by this “invisible hand” that our economy today works, and it can be used to make sense of how the laws of supply and demand work together to guide markets such as that of ice cream. The law of supply states that a rise in the price of a good induces an increase in the quantity supplied, while the law of demand states that a rise in the price of a good induces a decrease in the quantity demanded. Ultimately, these laws are used to predict which direction supply and demand curves shift, which for this scenario can be due to weather changes, the specific days of the week, and sudden decreases in the supplies used to make ice cream. In the case that the school allows another student to sell ice cream on campus as well, the price of ice cream would fall due to increased competition. The owner of the small ice cream stand on campus is known to have experienced fluctuations in the daily sales of ice cream. One reason to explain this is due to the constantly changing weather. On warmer or hotter days, there is a greater demand for ice cream because people eat it in order to cool off. Due to......

Words: 1131 - Pages: 5

Supply and Demand Economics

...the country. The effect that this will have on the demand for fuel is explained in this report, using the demand and supply model and also the priced determinants of demand. The report also explains the effect the removal of the subsidies will have on the revenue of the people supplying the fuel. The increase in fuel prices has a flow on effect increasing the prices of other goods which use fuel in their production. Question 1 The supply and demand model shows that when supply and demand quantities are balanced we have an equilibrium price. Once the price increases over this equilibrium price the demand decreases and supply increases which results in a surplus of good. When the price drops and demand increases it results in a shortage of goods. This is shown in diagram 1 below. Diagram 1 (Word Press 2011) The removal of the subsidy will mean there is an increase in the price of fuel making it too expensive for many consumers and therefore decreasing demand which may result in a surplus of fuel. Question 2 A “Elasticity of demand is a measure of how responsive consumers demand is to a change in the price of a product” (Jackson et al 2012, page 61). Inelastic demand occurs when the change in the price of a product has little impact on the quantity demanded. The price elasticity of demand for fuel in Nigeria is inelastic, as the increase in price from the removal of the subsidy would have little impact on the demand for petrol. I have reached this answer based on......

Words: 746 - Pages: 3

An Economic Analysis of Demand, Supply, Prices and Elasticities

...This assignment 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...

Words: 1683 - Pages: 7

Economics - Supply & Demand

...IP – Intro to Economic Thinking Frank K. Chadmon Colorado Technical University Online Professor Olanrewaju November 25, 2013 The mixing of supply and consumer demand is very important to consumers because the combination of these two typically sets the price of a good or service. The final market price is dependent upon both of these components of a market. When buyers and sellers agree on a price, that’s called the equilibrium price. For consumers and sellers, the law of supply and demand is a rule of thumb that holds true in the market. With other things being equal, price and the quantity demanded are inversely related; this means the greater the demand for a product or service, the higher the price and lower the demand for a product or service, the lower the price. Other things being equal, refers to factors that can affect demand, such as the availability of substitute goods or changes in consumer tastes. This analysis will provide a discussion of how supply and demand affects consumers, especially with respect to price, availability of goods or services. In the law of supply and demand, the quantity demanded is distinct from demand, which refers to the entire relationship between price and quantity demanded. There are a number of factors that affect both supply and demand and, as a result, consumers. When demand or supply for a good or service changes, the equilibrium price for the good or service changes also, so changes in demand or supply always......

Words: 906 - Pages: 4

Supply and Demand

...Supply and Demand Supply and demand is perhaps one of the most fundamental concepts of economics and is the backbone of a market economy and the qualities they share. In this paper, I will discuss what causes changes in supply and demand, determine how changes in price and quantity will influence market equilibrium. I’ll also describe how the necessity of a good and the availability of substitutions affect prices and compare and contrast market systems and the role of an economist within those systems. Supply, a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply also refers to the quantity of goods a vendor or suppliers are willing to make at a certain price that will benefit the growth of that vendor’s or supplier’s profits, business and demand. Demand refers to how much a product or service is desired by buyers. The law of demand is based off of “the higher the price is the lower the demand of the product will be.” Demand goes down. “If the price comes down the higher the demand of the product will be.” Demand goes up. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship – Price is a reflection of supply and demand. There are many factors to cause change in supply and demand but the recession is one good example of when and how change starts occurring in supply and demand. In the current recession that we are living in......

Words: 947 - Pages: 4

Supply and Demand

...Running head: SUPPLY AND DEMAND SIMULATION Supply and Demand Simulatio University of Phoenix ECO/365 November 20, 2013 Supply and Demand Simulation Supply and demand is a major concept in both macroeconomic and microeconomic settings. The week two simulation showed how a fictional apartment management company in the city of Atlantis is impacted by various economic factors. Macroeconomic concepts can be categorized as price elasticity and price ceilings because they have a broad impact on the overall region beyond the local apartment market. The microeconomic concepts can be categorized as changes in supply and demand and equilibrium, because these topics only affected the small apartment market in which the company operates. The simulation showed that a change in the supply curve or the demand curve could cause major changes to the economic environment. For example, if the demand curve shifted to the left, it would show a decrease in demand from consumers and cause fewer apartments to be occupied. This situation occurred in the simulation due to a widespread want for property ownership and made the management company to lower prices to compensate. The equilibrium price became lower because demand decreased, while supply and quantity stayed consistent. Similarly, if the supply curve were to shift to the right, it would show an increase in available apartments to rent. This situation could occur if the management company expanded the building to accommodate......

Words: 795 - Pages: 4

Economics: Demand and Supply

...Introduction to Economics BS1547 Introduction to Economics Macroeconomics Assignment- 1 Neo-Classical and Keynesian “The study of how society, and those in society allocate scarce and hence valuable resources between competing uses can be defined as Economics”(Jones, 2013) which was founded by Adam Smith in 1776. “The field of Economics that deals with the aggregate economy and changes in its level of unemployment, national income, growth rate, GDP, inflation and price level is called Macroeconomics.”(www.investopedia.com) As economics developed two distinct approaches were seen to immerge the Neo Classical which stated that Macroeconomics = ∑Microeconomics and the Keynesian which stated the opposite. Both these approaches are still followed in the managing of the present world Economies. Figure 1. As seen above, Neo classical approach lasted several years before the Great Depression, but was revived once again after the period of stagflation when the Keynesian approach failed to improve the economic condition. The Neo Classists approach influenced by Adam Smith and others with reference to the ‘invisible hand theory’ (Jones, 2013) stated that the “market is best left alone and that it will adjust and clear itself and hence finding its own macro-equilibrium.” (Jones, 2013) Keynes suggested that this is not realistic approach and that “government intervention is needed for the market to reach its macro-equilibrium.” (Jones, 2013) The Neo Classical approach towards......

Words: 525 - Pages: 3

Supply and Demand

...Running Head: Microeconomics and the Law of Supply and Demand Microeconomics and the Law of Supply and Demand ECO/365 February 12, 2012 Supply and Demand Simulation This week our facilitator assigned each student to participate in an economics simulation that allowed us to be in control over a property management company, named Good Life Management. In this simulation the student was able to use experimental economics and natural experiments. Atlantis is the city in which Good Life Management operates their seven apartment complexes. Atlantis is also a very desirable place to live, and keeps prices competitive. The simulation changed the economic, social, and political factors, and left the student to determine the correct market price to list the apartments. According to Colander, D. (2010) “Theories, models, and principles must be combined with knowledge of real-world economic institutions to arrive at specific policy recommendations”. Microeconomic and Microeconomics In this simulation there were many examples of how micro and macro economics influenced supply and demand. According to Colander, (2010) “Microeconomics is the study of how individuals choice is influenced by economic forces”. In the first simulation Good Life Management had 2,000 two-bedroom apartments with 28% vacancy rate. At this point the simulations recommendation is to lower the rent amount in order to get 15% vacancy which would maximize revenue for Good Life......

Words: 695 - Pages: 3

Economic Supply and Demand

...Economic Supply and Demand Analysis Tammy Costello MBA 502 April 20, 2014 Hector Morales Economic Supply and Demand Analysis Novo Nordisk has offered a significant amount of data involving their manufacturing of insulin to the general public. They have estimated that as populations change and diabetes is moving more into the cities we will find that two out of three people that have diabetes will reside in the city. “By 2030, it is estimated that more than half a billion people will suffer from diabetes with nearly two-thirds of everyone with diabetes living in cities, and those who move to cities are significantly more likely to develop diabetes than those who remain in rural settings” (Novo Nordisk, 2013). Census now show that more people now reside in the city than in the rural areas of the country. Now the population is at 52% and is thought to rise to 70% by the year 2050. Because of the economic strength and higher consumption, to inactive lifestyles and the inability to obtain good health care has given rise to the higher numbers of diabetes in our country. One of the main concerns of diabetic patients remains how they will pay for the necessary medications and supplies needed. In my research I have found that without insurance it can be relatively expensive especially for those on fixed incomes. The estimated prices for a vial of novo log insulin ranges from $143.00 to 200.00, 3 flex pens of novo log $207.00 to $250.00, and 3 cartridges $203.00 to...

Words: 1048 - Pages: 5

Econ 545 Business Economics Week 1 Supply and Demand

...ECON 545 Business Economics Week 1 Supply and Demand To Buy this Class Copy & paste below link in your Brower http://homeworkregency.com/downloads/econ-545-business-economics-week-1-supply-and-demand/ Or Visit Our Website Visit : http://www.homeworkregency.com Email Us : homeworkregency@gmail.com Question (1): Demand and Supply Let’s discuss the tutorial Understanding and Applying Supply and Demand in our Lecture this week. (a) What is the difference between a change in demand versus a change in quantity demanded? (b) A change in supply versus a change in quantity supplied? (c) Why is it so important to differentiate between these similar-sounding terms? Question (1): Elasticity Let’s discuss three different types of Elasticity: 1- Price Elasticity of Demand 2- Income Elasticity of Demand 3- Cross Elasticity of Demand What are the differences between these different types of Elasticity? How can you apply the above concepts on your jobs? The best way to determine whether any product is elastic or inelastic is to ask yourself whether there is a substitute for that product or not. The Gas example is a bit confusing. On one hand, some people view gas as inelastic since regardless the increase in the gas price, you have to buy it. On the other hand, other people view gas as elastic since there are substitutes such as other sources of energy. Based on the above discussion, what is your opinion? Is gas elastic or inelastic? Question (2) –......

Words: 477 - Pages: 2

Econ 545 Business Economics Week 1 Supply and Demand

...ECON 545 Business Economics Week 1 Supply and Demand http://homeworkfy.com/downloads/econ-545-business-economics-week-1-supply-and-demand/ To Get this Tutorial Copy & Paste above URL Into Your Browser Hit Us Email for Any Inquiry at: Homeworkfy@gmail.com Visit our Site for More Tutorials: (http://homeworkfy.com/ ) Question (1): Demand and Supply Let’s discuss the tutorial Understanding and Applying Supply and Demand in our Lecture this week. (a) What is the difference between a change in demand versus a change in quantity demanded? (b) A change in supply versus a change in quantity supplied? (c) Why is it so important to differentiate between these similar-sounding terms? Question (1): Elasticity Let’s discuss three different types of Elasticity: 1- Price Elasticity of Demand 2- Income Elasticity of Demand 3- Cross Elasticity of Demand What are the differences between these different types of Elasticity? How can you apply the above concepts on your jobs? The best way to determine whether any product is elastic or inelastic is to ask yourself whether there is a substitute for that product or not. The Gas example is a bit confusing. On one hand, some people view gas as inelastic since regardless the increase in the gas price, you have to buy it. On the other hand, other people view gas as elastic since there are substitutes such as other sources of energy. Based on the above discussion, what is your opinion? Is gas elastic or inelastic? Question...

Words: 482 - Pages: 2

Economics Supply and Demand

...Key Assignment (2) – Economic Growth and Supply Side Policy 1. Evaluate the use of supply side policies to achieve economic growth Supply side policies are polices designed to improves an economy’s productive potential and its ability to produce, which contributes to a faster rate of growth of real national output. Governments believe achieving sustained growth without causing a rise in inflation is dependant on improving supply-side performances. The perks of supply side policies are that it helps economies to develop labour productivity, reduce unemployment, and improve trading to help achieve economic growth. A key aim for supply-side policies is to decrease the level of unemployment in an economy. The policy is designed to improve the quality and quantity of the supply of labour available to the economy. A growth in labour supply increases the productive potential of an economy. Increased quality will improve the productivity of labour. A reduction in unemployment can be achieved through cuts in Income tax, providing an incentive to work. As income tax is paid directly from an individuals earned income, a lower income tax will act as an incentive for unemployed workers to join the labour market, or for existing workers to work harder. This is as result of them being able to keep a high proportion of the money they earn. An increase in national output can be accomplished as lower corporation tax provides an incentive for entrepreneurs to start a business or......

Words: 399 - Pages: 2

Demand and Supply

...RELATINOSHIP BETWEEN DEMAND, SUPPLY, PRICE AND INCOME ELASTICITY Essay Statement This essay is to critically discuss the concepts of demand and supply. That helps to understand how the product’s own price and income elasticity of people relates with each other. We would also discuss how these concepts would be useful to evaluate the fluctuations in the oil prices the world has experienced from January 2014 until August 2015. Demand Quantity of a particular product or service that is desired by the buyer is called Demand. The demand is basically depends on the price of the product. If the product price is low then the demand is high on the other hand if price is high then the demand is low. This relationship between demand and price is known as demand relationship. In this way the amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. In this way people will naturally avoid buying those things that are not valued for them. The chart below shows that the curve is a downward slope Figure1. Demand Relationship Curve The chart shows that higher the price lower the demand. Here P represents Price and Q represents Demand. So P1 is showing high price but Q1 means Demand is very low at that level. Then price goes down at P2 the demand increased at Q2 and so on. That means generally price reflects the demand. This demand relationship curve illustrates the negative......

Words: 2070 - Pages: 9

Econ 545 Business Economics Week 1 Supply and Demand

...ECON 545 Business Economics Week 1 Supply and Demand To Buy this Class Copy & paste below link in your Brower http://homeworkregency.com/downloads/econ-545-business-economics-week-1-supply-and-demand/ Or Visit Our Website Visit : http://www.homeworkregency.com Email Us : homeworkregency@gmail.com ECON 545 Business Economics Week 1 Supply and Demand Question (1): Demand and Supply Let’s discuss the tutorial Understanding and Applying Supply and Demand in our Lecture this week. (a) What is the difference between a change in demand versus a change in quantity demanded? (b) A change in supply versus a change in quantity supplied? (c) Why is it so important to differentiate between these similar-sounding terms? Question (1): Elasticity Let’s discuss three different types of Elasticity: 1- Price Elasticity of Demand 2- Income Elasticity of Demand 3- Cross Elasticity of Demand What are the differences between these different types of Elasticity? How can you apply the above concepts on your jobs? The best way to determine whether any product is elastic or inelastic is to ask yourself whether there is a substitute for that product or not. The Gas example is a bit confusing. On one hand, some people view gas as inelastic since regardless the increase in the gas price, you have to buy it. On the other hand, other people view gas as elastic since there are substitutes such as other sources of energy. Based on the above discussion, what is your opinion?...

Words: 490 - Pages: 2

Supply and Demand

...When we discuss the subject of economics, terms such as supply, demand, and equilibrium price are often mentioned. It is also common to see graphs which contain the supply and demand curve. We might ask, why are these terms so important when discussing economics? The answer is because these terms are the key components in the subject of economics. Therefore, before we can fully understand economics we must first understand the terms and how they are related. Demand can be described as the relationship between the price and quantity demanded for a particular good or service in specific circumstance. For each price provided, the demand relationship will tell the quantity that the customers are willing to purchase at a corresponding price. The quantity the customers are willing to purchase at a particular price is called the Quantity Demanded. An important thing to do is distinguish between demand and the quantity demanded. To explain the concept, the buyers are the people who want or need the product or service. The term “demand” refers to the willingness and ability of customers to purchase the good or service in the market. The demand relationship expresses the willingness and ability for the whole assortment of prices. To claim that a customer has a demand for a particular item is to declare that the customer has money with which to buy the item and is willing to exchange the money for the item. Customers do not demand what they do not truly want or need; therefore, a want......

Words: 944 - Pages: 4

EUR 21,74 | Russian Federation | Butterfly Kisses