Elasticity
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Research the elasticity of beef and eggs in regards to price changes. How do supply, demand, and price controls interact to affect equilibrium price of eggs? Why do customers have a more elastic buying response to beef than to eggs?
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Elasticity
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First, let us try to understand how do supply, demand and price controls interact to affect eq. price. We suppose that the market is currently in equilibrium.
a) Suppose the supply of eggs goes up, what do you think will happen to the price of eggs? This is rather simple, as supply goes up while demand remains the same, price will decrease. Similarly, if supply goes down, then price will increase. (this is known as law of supply)
b) The story for demand is similar; holding supply constant, an increase in demand increases price, and a decrease in demand reduces price. (this is called law of demand).
c) The one ambiguous case is when supply and demand both changes in one direction, say supply and demand both increase or decrease. Then the outcome is ambiguous as it depends on which factor increased more. If the ...
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