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Questions on Elasticity

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1. Using the supply and demand model, explain what would happen to the supply curve during a drought. Also explain the affect on the price of water.

2. Name a relatively inexpensive product that you purchase on a regular basis. If the price of that product increased by 25% how would you react? Why is your response elastic or inelastic?

3. Name a relatively expensive product that you purchase less frequently. If the price of that product increased by 25% how would you react? Why is your response considered to be elastic or inelastic?

4. Let's consider the price of gasoline. It has been changing a lot over the course of the last few years. How have you responded to the changes? Explain your reaction to the change in terms of it being either elastic or inelastic.

5. Would you react differently if you believe that increased gas prices will be temporary (short run) as opposed to being a long run phenomenon? How so and why?

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Solution Preview

A brief guide:

On question no. 1:On the onset of drought, water usually becomes scarce and costly. The movement of the supply curve of water during drought moves leftward which is normally the reaction of any product or services that are scarce. As drought continues, the price of water goes up. You can expand the discussion be showing a graphical representation.

Question no. 2 can be answered by naming products consumed or used everyday like drinking water, cigarette, wine, medication, toothpaste or shampoo. Naturally, ...

Solution Summary

The solution discusses elasticity and inelasticity issues.A guide discussion is found in the attached file.

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See Also This Related BrainMass Solution

Economics: Price Elasticity Questions

This analysis assessment has three parts. It is required to show the formula prior to your complete calculation.

Part I. Using the midpoint method, calculate and interpret the price elasticity of demand for the following situation: a.When the price of oranges increases from $1.00 per pound to $1.50 per pound, quantity demanded falls from 500 pounds to 400 pounds. Calculate the price elasticity of demand.
b.Is the demand for oranges price elastic, inelastic, or unit elastic? Explain.
c.Calculate total revenue before and after the price change. How does that relate to the elasticity interpretation?
Part II. Given the following information, calculate the income elasticity of demand using the midpoint formula.a.Nancy's income increases from $20,000 to $30,000 and her consumption of spaghetti changes from 10 pounds per month to 2 pounds per month. Calculate the income elasticity of demand.
b.Interpret the result.
Part III. Given the following information, calculate the cross-price elasticity of demand.a.The quantity of Pepsi purchased rises by 15% when the price of Coca-Cola rises by 30%. Calculate the cross-price elasticity.
b.Interpret the result.

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