...production firms to operate. Also, recent technological advances in plastics have reduced the demand for steel products. Use Supply and Demand analysis to predict how these shocks will affect equilibrium price and quantity of steel. Can we say with certainty that the market price for steel will fall? Why? Solution: The increase in the cost of production of steel will shift the supply curve to the left. This effect alone on the market will influence the market price to rise while the market quantity will fall. This is shown above by a movement from the original supply curve S0 to a new supply curve such as S1. The decrease in demand will cause the demand curve to shift to the left. This effect alone on the market will influence the market price and quantity of steel to fall. Note that the supply and demand effects on price work in opposite directions. If the supply effect dominates the demand effect, the equilibrium prices will rise. This is exhibited by the decrease in demand to D1’. On this demand curve, the net effect is for prices to rise from P0 to P1’. On the other hand if the demand effect dominates, equilibrium prices will rise. This is exhibited by the decrease in demand to D1’’. On this demand curve, the net effect is for prices to fall from P0 to P1’’. As we don’t know given the current information which effect dominates, we can’t perfectly predict the change in price. The change in quantity is unambiguously decreased. 2. Midcontinent Plastics makes...
Words: 3572 - Pages: 15
...CHAPTER 2 THE BASICS OF SUPPLY AND DEMAND QUESTIONS FOR REVIEW 1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level? Assume the supply curve is fixed. The unusually hot weather will cause a rightward shift in the demand curve, creating short-run excess demand at the current price. Consumers will begin to bid against each other for the ice cream, putting upward pressure on the price. The price of ice cream will rise until the quantity demanded and the quantity supplied are equal. [pic] Figure 2.1 2. Use supply and demand curves to illustrate how each of the following events would affect the price of butter and the quantity of butter bought and sold: a. An increase in the price of margarine. Most people consider butter and margarine to be substitute goods. An increase in the price of margarine will cause people to increase their consumption of butter, thereby shifting the demand curve for butter out from D1 to D2 in Figure 2.2.a. This shift in demand will cause the equilibrium price to rise from P1 to P2 and the equilibrium quantity to increase from Q1 to Q2. [pic] Figure 2.2.a b. An increase in the price of milk. Milk is the main ingredient in butter. An increase in the price of milk will increase the cost of producing butter. The supply curve for butter will shift from S1 to S2 in Figure 2.2.b...
Words: 6114 - Pages: 25
...this paper is to discuss the Supply and Demand simulation from the student website. The idea is to identify two microeconomic and two macroeconomic principles present in the simulation and to explain why these principles are categorized as macro or microeconomic. The paper will also determine one shift of the supply curve and one shift of the demand curve from the simulation, as well as why these shifts happen. Their impact on the equilibrium price, on decision making, and on quantity will be also analyzed. Then, it will refer to ways in which concepts about supply and demand can be applied in a real life-situation or in the workplace. The paper will also refer to ways in which concepts of micro and macroeconomics help in understanding factors that influence movements in supply and demand on the equilibrium price and quantity. Last, the paper will refer to how the price elasticity of demand has an impact on the consumer’s purchasing and on the pricing strategy of the company. Macro and Microeconomic Principles Two microeconomic concepts that are present in the simulation are: supply and demand. The simulation talks about supply and demand or rental apartments from Atlantis. On the other hand, at macroeconomic level, we can talk about the changes in population trends when it comes to choosing to rent or not to rent apartments as well as factors that influence these changes. According to Colander (2010), the law of the demand says that quantity demanded increases as price falls...
Words: 842 - Pages: 4
...Canadian International Trade Tribunal (CITT). The proposed tariff is in response to an increase in imports of lower-‐cost bicycles, which was determined to have caused serious injury to domestic bicycle producers. From 2000 to 2004, bicycle imports increased nearly 98%, accounting for nearly 69% of all bicycles sold in Canada in 2004, up from 42% in 2000. This analysis incorporates sensitivities in estimated elasticities of demand and supply to predict impact on the bicycle market, paying particular attention to welfare effects. POLICY ANALYSIS MECHANICS The tariff is proposed to be levied over three years, starting at 30%, then 25%, then 20%. In order to approximate effect in the...
Words: 2249 - Pages: 9
...|A Report on | |Elasticity and Related Problems | |A Report on | |Elasticity and Related Problems | Course Title: Microeconomics Course Code: F – 106 Submitted To: Lubna Rahman Lecturer Department of Finance University of Dhaka Submitted By: |Serial No. | | | |Name | | | |ID No. | | | | | | | |01. | | | |Md. Tanvir Ahmed Chy ...
Words: 2733 - Pages: 11
...Running head: SUPPLY AND DEMAND AND ELASTICITY PAPER Supply and Demand and Elasticity Paper Principles of Economics ECO212 Supply and Demand and Elasticity Paper Supply and demand is perhaps one of the most fundamental concepts of economics and is the backbone of a market economy. The relationship between demand and supply underlie the forces behind the allocation of resources. (Investopidia A forbe digital company, n.d.). In this paper we will discuss what causes changes in supply and demand, determine how changes in price and quantity will influence market equilibrium. This paper will also describe how the necessity of a good and the availability of substitutions affect price elasticity and compare and contrast market systems and the role of an economist within these systems. Supply is 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 (quantity) of a product or service is desired by buyers. (Investopidia A forbe digital company, n.d.) 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...
Words: 1005 - Pages: 5
...Running Head: Supply, Demand and Price Elasticity Supply, Demand and Price Elasticity Team A Adrian Perez University of Phoenix ECO/212 - PRINCIPLES OF ECONOMICS Group ID: BSAH0R4CU8 ONLINE MAIN January 9, 2012 Supply, Demand and Price Elasticity Paper InvestorWords.com (2012) defines a commodity as a “physical substance, such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts” (InvestorWords.com, 2012). Differentiating Between Market Structures Table and Paper Resource: Market Structure Table Complete the Market Structure Table located on your student website. Write a 1,050 word paper addressing the following questions: Compare and contrast public goods, private goods, common resources, and natural monopolies. Explain how labor market equilibrium is affected by the supply and demand of labor. Select an organization with which you are familiar and identify the market structure of that organization. Describe the characteristics of the organization that make it a specific market structure. Evaluate the effectiveness of this structure for the organization. For your selected organization, summarize the factors that affect labor supply and demand. Availability of qualified personnel effects both labor supply and demand. For example: A critical shortage of nurses in this country effects the supply of qualified nurses...
Words: 567 - Pages: 3
...Chapter 2 The Basics of Supply and Demand Questions for Review 1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level? Suppose the supply of ice cream is completely inelastic in the short run, so the supply curve is vertical as shown below. The initial equilibrium is at price P1. The unusually hot weather causes the demand curve for ice cream to shift from D1 to D2, creating short-run excess demand (i.e., a temporary shortage) at the current price. Consumers will bid against each other for the ice cream, putting upward pressure on the price, and ice cream sellers will react by raising price. The price of ice cream will rise until the quantity demanded and the quantity supplied are equal, which occurs at price P2. Copyright © 2013 Pearson Education. Inc. Publishing as Prentice Hall. Chapter 2 The Basics of Supply and Demand 2. Use supply and demand curves to illustrate how each of the following events would affect the price of butter and the quantity of butter bought and sold: a. An increase in the price of margarine. Butter and margarine are substitute goods for most people. Therefore, an increase in the price of margarine will cause people to increase their consumption of butter, thereby shifting the demand curve for butter out from D1 to D2 in Figure 2.2.a. This shift in demand causes the equilibrium price of butter to rise from P1...
Words: 7803 - Pages: 32
...Q1: A: Demand increases B: Demand falls C: Let A and B be substitute goods. If the price of A increases, the quantity demanded of A decreases (law of demand). Because consumers can easily buy good B instead of good A, they will purchase more of good B (because good A is more expensive) and hence the demand for good B will increase. D: If goods A and B are complements, an increase in the price of A will result in a leftward movement along the demand curve of A and cause the demand curve for B to shift in Q2: Total Revenue is TR=P*Q= (600 - 4Q)*Q Marginal Revenue is MR=dTR/dQ= 600-8Q When MR=0 600-8Q=0 Then Q=75 so P=600-4*75= 300 so Price is 300 which TR is maximized. Ed= (ΔQ/ΔP )* (P/Q)=-4*(100/125)= - 3.2 * If |PED| > 1 then Demand is Price Elastic (Demand is sensitive to price changes) * If |PED| = 1 then Demand is Unit Elastic * If |PED| < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes) Ignore the negative sign Revenue is maximized when price is set so that the Price elasticity of demand (PED) is exactly one. When Ed=1, P/Q=0.25 so P=35 Income elasticity of demand measures the responsiveness of demand to changes in the consumer income: is Ei =(ΔQ/ΔI )* (I/Q) Q3: A: False. Since plastic surgery is price inelastic, which means the demand is not sensitive to the price changes. B: False. Since plastic surgery is price inelastic, |PED| =|(ΔQ/Q)/( ΔP/P)|< 1, which means the percentage change in the price...
Words: 632 - Pages: 3
...Microeconomics and the Laws of Supply and Demand To purchase this visit here: http://mindsblow.us/question_des/MicroeconomicsandtheLawsofSupplyandDemand/2779 Contact us at: help@mindblows.us Complete one of the following options: Option 1: Complete the Supply and Demand Simulation. Write a 1,050- to 1,400-word paper summarizing the content of the simulation and address the following: Identify two microeconomics and two macroeconomics principles or concepts from the simulation/video. Explain why you have categorized these selected principles or concepts as microeconomics or macroeconomics. Identify at least one shift of the supply curve and one shift of the demand curve in the simulation/video. Explain what causes the shifts, and how each shift affects the price, quantity, and decision making. Include responses to the following: How might you apply what you learned about supply and demand from the simulation/video to your workplace or your understanding of a real-world product with which you are familiar? How do the concepts of microeconomics help you understand the factors that affect shifts in supply and demand on equilibrium price and quantity? How do the concepts of macroeconomics help you understand the factors that affect shifts in supply and demand on the equilibrium price and quantity? How does the price elasticity of demand affect a consumer's purchasing and the firm's pricing strategy as it relates to the simulation/video? Cite a minimum of 3 peer...
Words: 936 - Pages: 4
...Supply and Demand Simulation Joseph Silva Eco 365 FARIBA KHERADMAND 5/6/14 In this paper we will be observing the key points of microeconomics and how it relates to week twos supply and demand simulation. We shall go over and review the basic principals on how the supply and demand curve works and is effected in certain senarios. Also in this summary we will go over the affects on equlibrium price, quantiy, and decision making. Finally we will talk about the firms stategies how it relates to the senario. The senario in this simulation brings you to a new city called Atlantis where you are a property manager of some two bed room apartments. Your job is to manage the rental rates and make sure things don’t get out of hand in reguads to shifts in the demand and supply. The first topic we shall review in this paper is the miro and macro economic principles that came up in the simulation. From the the microeconomy stand point the two concepts that came up were the supply and demand as well as price cellings. The supply and demand was the most obvious one to choose. In the simulation you had to figure out how much the supply and demand curve shifted. In most cases the demand curve was always shifting due to the preferences of the simulation always changing. If the population increased then the demand for the apartments increased. Same thing if the preference changed it could cause and increased affect or a decreased...
Words: 758 - Pages: 4
...Analysis ..................................................................................................... 5 Demand and Supply ............................................................................................... 5 Elasticity ................................................................................................................. 8 Efficiency and Equity ............................................................................................. 10 Conclusion ............................................................................................................... 12 References ............................................................................................................... 13 1 Executive Summary The objective of this paper is to offer an in-depth analysis the economic situation of the newspaper publishing industry in Australia within the microeconomic scope. The paper analyses transformations of the industry brought by digitisation and the fast paced technology development. It discusses how digitisation and technology affects the demand and supply of printed newspapers. It also looks at the elasticity and efficiency and equity of newspaper in the current market. This paper is divided into four section. Following an introduction (Section 1.0), then Section 2 .0 introduces the economic concept which will be used through the paper. Section 3.0 analyses the economic state of the newspaper publishing industry using...
Words: 3149 - Pages: 13
...but it provides a small view of how the United States made a simple choice of demand and supply through fee-for-service to managed care, PPOs, and other insurers of health care including the federal government. Fee-for-service in the early 1900s was the norm for the American public. Insurance companies did not provide health care, and if they provided the service it was only available to a few wealthy people. Physicians charged a set price based on the ailment or disease, they were paid in goods or money. In the 60s and 70s it was becoming popular for employers to pay health insurance and employers realized that if they provided this essential benefit, the productivity and profits would increase because his or her employee is healthier. At the end of the 70s Americans were demanding health benefits and in the advent of the demand the cost of health increased. The government entered the health insurance arena in 1965 with the passage of Medicare and Medicaid, which covered people without health insurance and elderly, children and mothers. The advent of this legislation changed health care services and the supply and demand of American public. Today the United States health care system is a myriad mass of complex coverage, funding, and regulation. The factors that influence health care economics are the advances in technology and medical care. This paper will discuss supply and demand and price...
Words: 806 - Pages: 4
...Lines] ECON212-1503B-05 Professor Chavarria CTU Online Author Note Unit 2 Individual Project What is the price elasticity of demand? The price elasticity of demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in it’s price. Price elasticity of demand is often used when discussing price sensitivity. The formula for calculating price elasticity is % change in quantity demanded / % change in price. What is elastic and inelastic demand? Elastic demand is the degree to which a demand or supply curve reacts to a change in price which is the curves elasticity. However; elasticity varies among products because some products are more essential to customers. For instances, products that are more on a necessities level are more insensitive to changes in price because of the fact that costumers are continuing to buy these products. A price increase of a product that is considered less of a necessity will not have customers buy because cost of buying the product will become high. Inelastic demand is used to describe situations in which supply and demand for a good or service is unaffected when the price of that good or service changes. Meaning that when prices go up, costumers buying stays the same, but when price goes down, buying habits also remain unchanged. The price of a laptop increases 20% and there is a 40% decrease in quantity demanded. If a laptop increases 20% and there is a 40% decrease...
Words: 895 - Pages: 4
...Supply and Demand One of the most critical concepts in the study of economy and the way our world works is: supply and demand. This essentially helps use understand markets and the way we consume the things we need and want on a daily basis. Supply and demand concepts have application in everyday life and in business. Essentially supply and demand are determined separately, the sellers determine the supply and the buyers determine the demand. The price of the product or service offered is never really fixed until equilibrium is reached. Another words the product or service offered must equal the amount demanded. This concept has a direct impact on consumers in the daily decisions he or she will make. However many variables within supply and demand still exists. With all the variations of products and services offered what makes consumers pick one product or service over another? In the following paragraphs you should have a better understanding of what drives decisions that are vital to the market in an economy. In economics, elasticity is the measurement of how changing one economic variable affects others. Elasticity extends our understanding of markets by letting us know the degree to which changes in price and income affect supply and demand. Sometimes the responses are substantial, other times minimal or even non-existent. But by knowing what to expect, businesses and government can do a better job deciding what to produce, how much to charge, and, surprisingly...
Words: 794 - Pages: 4
