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Price Elasticity and Supply & Demand Appendix B

mb EventMarket affected by eventShift in supply, demand, or both. Explain your answer. Change in equilibrium Frozen orange crops in CaliforniaOrange juiceSupply (left)—Not as many available oranges to offer consumers. Price will increase and quantity will decrease. Hurricanes in the Gulf Coast TourismDemand (left) because not as many people are going to want to travel there due to the Threat of hurricanes and the damage from a hurricane will make less availability of hotels. Price will decrease and so will the quantity.

Cost of cotton decreases TextilesSupply (right) as there is a decrease in input costs (more clothing will be made)Price will decrease and quantity will increase. Technology improves efficiency in pasta manufacturing PastaSupply (right) will increase because pasta makers will be able to produce pasta more efficientlySo price will decrease and Quantity will increase. What do substitutes refer to in economics? Give an example of two substitutes. A substitute good is a good a consumer buys in place of another good when it becomes too expensive.

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For example, if Capri Sun juice pouches are cheaper than Kool Aid juice pouches, you may buy the Capri Suns instead, or if margarine is cheaper than butter you may buy the margarine. Define “Price Elasticity of Demand. ” Give an example. “Price Elasticity of Demand” is the quantity demanded of a product when the price increases of a product. Most the time the number is negative since normally the demand does down on a product with increase of price. An example is gas prices, when a gas station raises their price of gas a lot of consumers search for the gas station with the cheapest gas.

So if you are a gas station owner, if you have the lowest price you are going to get the business. Determine if the demand for the following products is price elastic or price inelastic, and explain your answer. In your explanation, be sure to include how the necessity of a good and the availability of substitutes affect the price elasticity of demand in each of these specific cases: -Gasoline as a commodity-is price inelastic because even if prices go up, demand still remains strong. -Gasoline sold at a local gasoline station-is price inelastic.

There are few Substitutes for gasoline, so consumers tend to be less price conscious, and people see gasoline as a necessitity. -Hotel rooms for people planning a vacation-is price elastic because it is Something the people want, not something they need so if the hotel costs too much, they are going to go elsewhere to find something cheaper. -Hotel rooms for people on business to meet an important client-is price inelastic Because the people on business have to meet with the important client if they want to do well at their job.

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