Economics Workshop: Price Elasticity of Demand PDF

WORKSHOP 3 For this workshop draw this diagram EQUILIBRIUM PRICE & ELASTICITY What factors cause shifts in demand and shifts in supply? What happens when demand and supply shift? 0 1. Using supply and demand diagrams, examine the effec...

WORKSHOP 3 For this workshop draw this diagram EQUILIBRIUM PRICE & ELASTICITY What factors cause shifts in demand and shifts in supply? What happens when demand and supply shift? 0 1. Using supply and demand diagrams, examine the effect on the market for iPhones if: a. The price of Samsung Galaxy reduces b. There is a launch for a new iPhone advertising campaign with popular celebrities c. The technology for producing iPhones is improved d. The Chancellor of Exchequer announces an increase in personal tax allowance e. Management of Apple decides to increase the price of iPhones. 2. What will happen to the equilibrium price and quantity of butter in each of the following cases? For this question you should state whether demand or supply or both shift and in which direction: a. a rise in the price of margarine; b. a rise in the price of bread; c. a rise in the demand for bread; d. an expected increase in the price of butter in the near future; e. a tax on butter production; f. the invention of a new, but expensive, process of removing all cholesterol from butter, plus the passing of a law which states that butter producers must use this process. 3. How would you define price elasticity of demand (Ped)? Give definition and formula: 4. Assume that the price of a product declines from £15 to £12 and its quantity demanded will rise from 10 units to 32 units. Using mid-point method, calculate Ped for this product and give an interpretation of your result in the light of pricing strategy of this business. 5. Which of the following explains why the demand curve slopes downwards? a. Substitutes and complements b. Prices and income c. Substitution and income effects d. Price and substitutes 6. A market will experience a ____________ when the price is below the equilibrium and a _________ when price is above equilibrium. a. shortage, surplus b. surplus, shortage c. shortage, shortage d. surplus, surplus 7. A 15% increase in income leads to an increase in quantity demanded from 18 units per week to 24 units per week. The income elasticity of demand is: a. 1.67 b. 2.22 c. 4.44 d. 0.02 8. Inelastic demand for a good means the following: a. total revenues fall as the price of the good rises b. there are lots of close substitutes for the good c. the firm can sell as much as it wants at a given price d. the quantity demanded does not change much when the price is altered Key terms you learnt today: 1. 2. 3. 4. 5. 6. 7. 8.