Associate Level Material
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 as a tool to help you answer questions about the changes in price and quantity
Market affected by event
Shift in supply, demand, or both. Explain your answer.
Change in equilibrium
Frozen orange crops in California
Supply (left)—Not as many available oranges to offer consumers.
Price will increase and quantity will decrease.
Hurricanes in the Gulf Coast
Demand (right)-Fishing boats destroyed.
Prices will decrease and quantity will decrease.
Cost of cotton decreases
Supply (right)-Production costs decrease
Price will decrease and quantity will increase.
Technology improves efficiency in pasta manufacturing
Both (left)-The price of pasta decreases because of improvements in technology. More people will purchase pasta rather than other prepackaged items such as mashed potatoes and stuffing.
Price decreases and quantity increases.
1. What do substitutes refer to in economics? Give an example of two substitutes.
In economics, substitutes are items that can easily replace each other. This gives the buyer an easy option to switch from one item to the other with little or no difference. It gives the buyer the ability to adjust for cost increases or availability decreases. An example of this is a truck and a car. If the prices of either increase a consumer can easily purchase the other instead and get the same benefit. Another example of this is greeting cards and ecards. If the price of paper cards goes up too high consumers will rely more heavily on free ecards and get the same benefit.
2. Define “Price Elasticity of Demand.” Give an example.
The price elasticity of demand measures how the consumer...