week 3 Flashcards
(16 cards)
Higher average incomes increase the demand for preventative dental visits. Explain why this will lead the quantity supplied of dental visits to increase, but supply will not increase.
An increase in income shifts demand, not supply in the market for dental visits. As demand increases, the equilibrium quantity moves up the supply curve to a higher price and more quantity supplied.
Suppose the supply of green tea increases; why is it that equilibrium price and equilibrium quantity move in opposite directions?
As the supply of green tea increases, holding all else equal, the equilibrium price decrease as the new supply curve intersects the demand curve at a lower price level. The equilibrium quantity increases due to the law of demand: As the price falls, more consumers are willing and able to purchase green tea.
“After years of relative equilibrium, the job market for nurses is heating up in many markets, driving up wages and sign-on bonuses for the nation’s fifth-largest occupation.” Many nurses who had delayed their retirement due to the 2008 recession had begun to retire, resulting in a retirement wave that caused nurses to exit the workforce in greater numbers than new nurses were entering. At the same time, demand for nurses had increased due to the additional health care coverage associated with job growth over the previous decade since the recession
a) describe the supply and demand curve after these developments
b) describe what would happen with the nurses wages
a) The increase in the retirement rate will decrease the supply of nurses as nurses exit the labour market. Simultaneously, the demand for nurses has increased due to increased demand for medical care and nurse labour is an input into medical care.
this means a shift to the right in demand and a shift to the left in supply
b) The equilibrium wage would increase due to the simultaneously decrease in the supply of nurses and increase in demand for nurses. This is consistent with the observable data.
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.
a. The market for steel in the United States: Fuel efficiency regulations have reduced the use of steel in automobile production and increased the use of lighter materials such as aluminum AND import restrictions limit the amount of steel that can be imported into the United States.
In the market for steel in the U.S., the fuel efficiency regulations have decreased the demand for steel from automobile producers. This is represented by a leftward shift of the demand curve. The import restrictions have decreased the supply of steel in the U.S. This is represented by a leftward shift in the supply curve. As a result, quantity falls, but the change in price depends on which shift is larger
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.
The market for international airline tickets: Incomes decline due to a recession AND Norwegian Airlines adds more U.S. cities to its list of international flight destinations.
In the market for international airline flights, a decline in income shifts the demand curve to the left. However, more cities with international routes shifts the supply of international flights to the right. The result is a decrease in price, but the new equilibrium quantity depends on the size of the shifts.
provide some examples of goods with inelastic demands
gasoline (especially if students live in an area where commuting is a necessity), electricity, water, medicine.
answers for inelastic goods or services may be life-saving medical treatment and the like
In 2017, Hurricane Irma had a significant, negative impact on the orange harvest in the state of Florida. The U.S. Department of Agriculture predicted that the quantity of oranges produced would be 21% lower than the previous year. If the price elasticity of demand for oranges is −1.5, what impact would Hurricane Irma have on the price of oranges if all oranges are sold?
to find this out we use the formula. price elasticity of demand = % change in quantity demanded/ percent change in price
because we know the PED = 1.5
and percentage change in demand = -21%
we rearrange so -21 is divided by 1.5 which is equal to 14%
make sure you know the formula
what is a market ?
Markets organize economic activity -They bring potential buyers into contact with potential sellers. Market outcomes are determined by the forces of supply and demand.
what is price elasticity of demand? and the formula
a measure of how responsive buyers are to price changes .
PED = % change in Q demanded / % change in price
what does it mean if the price elasticity is above one
it means demand is elastic. the percentage change in quantity is larger than the percentage change in price
quantity is very responsive to changes in price
demand curve is relatively flat
what dies it mean if price elasticity is less than one
the demand curve is inelastic. percentage change in quantity is smaller than the price quantity is not responsive to change in price
demand curve is very steep
what does more competing products mean for elasticity
more competing products means greater elasticity. if loads of options it means you will pick the best value for money
what does it mean for elasticity if the good is a necessity
necessities have less elastic demand. - things that you need to buy even if the price rises. Eg medicine
what does it mean for elasticity if the goods are rare
it will be more inelastic as you cant find substitutes for the good
what does it mean for elasticity if there are more substitute goods ?
demand will be more elastic
