The applications of supply and demand to daily life

863 words (3 pages) essay in Economics

10/05/17 Economics Reference this

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Supply and demand concepts have application in everyday life. They also directly impact the business person in daily decisions.

Task:

A. Define the following three terms:

1. Elasticity of demand

2. Cross-price elasticity (include substitutes and complements)

3. Income elasticity (include normal and inferior goods)

B. Explain the elasticity coefficients for each of the three terms defined in part A.

C. Contrast the terms defined in part A.

1. Explain the significance of differences among the three terms you contrasted in part C.

D. Explain whether demand would tend to be more or less elastic for each of the following three determinants of elasticity demand:

1. Availability of substitutes

2. Share of consumer income devoted to a good

3. Consumer’s time horizon

E. Provide an example for each of the three determinants in part D.

1. Explain the logical impacts to business decision making that result from each of the examples you provided in part E.

F. Differentiate between perfectly inelastic demand and perfectly elastic demand.

1. Illustrate the difference between the terms in part F with specific descriptions or graphs.

G. Explain the relationship between elasticity of demand and total revenue for the following ranges along the demand curve, using the attached “Graphs for Elasticity of Demand, Total Revenue.” Include the impacts to quantity demanded and total revenue when there is a price decrease, ceteris paribus.

1. Elastic range

2. Inelastic range

3. Unit-elastic range

This paper is still not correct. Comments:

“Elasticity of demand is the degree of responsiveness of demand of a particular commodity as a result of the changes in other related factors of demand. “

Elasticity of demand measures the responsiveness of demand to something specific. Please replace the “other related factors of demand” with the other aspect of elasticity of demand.

The elasticity coefficients were not included in this submission. Please note that the coefficients will be values or a range of values.

Please provide the specific coefficients for elasticity of demand (elastic, inelastic, unit elastic), cross-price elasticity (substitutes and complements), and income elasticity (normal and inferior goods).

Share of consumer income devoted to a good: The following is correct:

“Demand of a commodity is likely to be less elastic for a good whose proportion of income spent on it is small. For a good whose proportion of income spent on it is large enough, its elastic demand is great. “

However, the provided explanation is not correct:

“This is because as income increases, people tend to consume less of the cheapest commodity (Smith & formby, 2006). An example is the low-quality foods and fabrics. “

Please note that the share of consumer income devoted to a good determinant is not the same as income elasticity as discussed in part A3. Please review the textbook regarding the share of consumer income devoted to a good. For this aspect the candidate should discuss the elasticity of a low cost good and a high cost good. Which is more elastic? Why is this the case? A change of income should not be discussed here.

Examples of consumers time horizon:

For this aspect specific examples should be provided for each determinant in part D.

For example, discuss a good with many substitutes and the elasticity of the good. This would be an example of the availability of substitutes. Be sure to do this for all three determinants

Logical examples: For this aspect, please use the revised examples from part E to discuss how a business would make decisions (i.e. set prices) given the elasticity of its product in the example.

The discussion on perfectly inelastic demand is acceptable. However, the definition of perfectly elastic demand needs some clarification. Consider discussing perfectly elastic demand in terms of a price increase or decrease. What happens to the demand of a perfectly elastic good when the price changes?

The provided discussion accurately defines the elastic range. However, for this aspect to meet standard please also refer to the provided graphs and clearly identify the range in terms of price, quantity, and total revenue.

For example, the elastic range occurs from $___ to $___ price, ___ to ___ quantity demanded, and total revenue from ______ to _______.

The provided discussion accurately defines the inelastic range. However, for this aspect to meet standard please also refer to the provided graphs and clearly identify the range in terms of price, quantity, and total revenue.

For example, the inelastic range occurs from $___ to $___ price, ___ to ___ quantity demanded, and total revenue from ______ to _______.

The provided discussion accurately defines the unit-elastic range. However, for this aspect to meet standard please also refer to the provided graphs and clearly identify the range in terms of price, quantity, and total revenue.

For example, the unit-elastic range occurs from $___ to $___ price, ___ to ___ quantity demanded, and total revenue from ______ to _______.

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