Directons: Answer each of the questions below.1. From the newspaper came this story: “Record Number of Baseball Fans Paid Higher Prices for Tickets.” Explain how and why this situation could occur. Provide one example of a time when you paid a higher price than normal and explain why you did so. Don’t forget that this example can be a product or a service.2. Identify a product that is crucial to our economic system. Explain the supply and demand curve for that product.3. What is the Law of Diminishing Demand? Provide one example.4. Give an example of a product with an elastic demand and one with inelastic demand. Explain each product and why you believe it is elastic or inelastic.5. Explain equilibrium. Be specific and provide at least one example.6. Conduct internet research to locate an illustration of a supply and demand curve. Provide the link and a summary of the product or service in the illustration and why this is a good example of the supply and demand curve. Don’t forget to cite your source (provide the link) Answer
Review Lesson 6
1. From the newspaper came this story: “Record Number of Baseball Fans Paid Higher Prices for Tickets.” Explain how and why this situation could occur. Provide one example of a time when you paid a higher price than normal and explain why you did so. Don’t forget that this example can be a product or a service.
The baseball fans paid for the higher prices because of the fact that there was scarcity for the tickets thus were not easily available. In that regard, the demand for the tickets was high, where is the supply (the availability of the tickets) was low. In respect to the law of supply and demand, when the demand is high whereas the supply is low, the prices have t increase.
An example of a time during which I had to pay a higher price than the normal was at a time during which there was little supply of gasoline in our area as a result of the region having being struck by a tornado. In that regard, the demand for gasoline was high yet the supply was low resulting to a drastic increase in the gasoline prices. I had no option other than pay the high prices because I had to fuel my car.
2. Identify a product that is crucial to our economic system. Explain the supply and demand curve for that product.
One of the products which is crucial for the economic system of our country is gasoline. Gasoline prices in most cases tend to increase in the event the prevailing supply of gasoline gets smaller, relative to the anticipated or real demand (consumption). In other words, once it occurs that there is a shortage in the availability of gasoline, the prices increase drastically. Typically, the retail prices of gasoline are affected by the crude oil prices, as well as, the supply level of gasoline relative to demand (Ball & Seidman, 2012). Given that it is not possible to reduce expenditure in gasoline, the impact of increase in prices are mostly shifted to other economic sectors thereby making gasoline a vital product to our economic system.
3. What is the Law of Diminishing Demand? Provide one example.
The law of diminishing demand states that as an individual increases the consumption of a certain product while maintaining the consumption of the other products constant, a decline occurs within the marginal utility, which an individual derives from the consumption of every extra unit of the particular product (Ball & Seidman, 2012). As the product decreases, consumers are only willing to oat lesser prices for such a product. For instance, in the vent one purchases a vacuum cleaner at $100, as a result of the insignificant value of a second one, the same person maybe ready to pay $20 only for the second vacuum cleaner.
4. Give an example of a product with an elastic demand and one with inelastic demand. Explain each product and why you believe it is elastic or inelastic.
The piece elasticity of demand basically measures the respective responsiveness of demand once there are changes in demand. In an elastic demand, a change in the product or service price causes a significant percentage change in its demand. A product or service is considered as price elastic once a price increase results to a larger fall in demand. Mostly, the products with elastic demand are the ones that have multiple substitutes (Prasch, 2008). An example of such a product is the Tesco bread. In the event the price of Tesco bread is increased, consumers have a wide range of substitutes to switch to thus the demand of the Tesco bread will fall with a great margin.
On the contrary, a product is considered to have an inelastic demand in the event an increase in its prices results to an insignificant change in its demand. The products with inelastic demand are mostly those that do not have equivalent substitutes. An example of such a product is cooking salt. An increase in the price of the cooking salt cannot result to any significant impact on its demand due to the unavailability of substitutes to the cooking salt.
5. Explain equilibrium. Be specific and provide at least one example.
In economics, equilibrium can be described as the point within which the supply of a product or service equals its demand, whereby the equilibrium prices exists within the intersection point of the hypothetical demand and supply (Prasch, 2008). The equilibrium can either be static or dynamic. The static equilibrium does not change over time, whereas dynamic equilibrium is held constant by forces that are equal but opposing thus does not remain unchanged for long. An example is in the case of soft drinks such as coke, whereby the supply tends to have equaled the demand, hence the constant prices of coke.
6. Conduct internet research to locate an illustration of a supply and demand curve. Provide the link and a summary of the product or service in the illustration and why this is a good example of the supply and demand curve. Don’t forget to cite your source (provide the link).
An example of a supply and demand curve is such as the one features under figure 6.8 entitled Shift of Market Supply Upward in Response to an Increase in the Price of Crude Oil and Change in the Market Equilibrium as featured in https://saylordotorg.github.io/text_principles-of-managerial-economics/s06-06-shifts-in-supply-and-demand-cu.html,. This is a perfect supply and demand curve as it demonstrates the manner in which changes in crude oil prices results to considerable increase in price but fairly modest decrease in demand.
6.6 Shifts in Supply and Demand Curves. Retrieved from https://saylordotorg.github.io/text_principles-of-managerial-economics/s06-06-shifts-in-supply-and-demand-cu.html,
Ball, M. K., & Seidman, D. (2012). Supply and demand. New York: Rosen Pub.
Prasch, R. E. (2008). How markets work: Supply, demand and the ‘real world’. Cheltenham, UK: Edward Elgar.
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