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Environmental Issues and Elasticity:

You just opened a flower shop and are trying to comprehend pricing issues. You were told that elasticity is very important in finding out prices and what products to supply, so you decide to investigate this concept.

You call your friend, an economics professor, and ask, "What is the price elasticity of demand? What determines it? What is elastic and inelastic demand?"

To really comprehend it, find out the given price elasticity of demand:

A) The price of a laptop increases by 20 percent and there is a 40 percent fall in the quantity demanded.

B) The price of a pack of cigarettes increases by 10 percent and there is a 5 percent fall in the quantity demanded.

C) The price of water increases by 15 percent however there is no fall in the quantity demanded.

Of the above illustrations, which are more elastic, and which is the least elastic? Why? Answer the given problems:

1) Why is elasticity a significant concept for a business? What if national income went up? How would that affect elasticity?

2) What is the price elasticity of supply? What finds out it?

3) find out the given price elasticity of supply:

a) The price of a hotel room increases by 20 percent, and the quantity supplied increases by 10 percent.
b) The price of health care goes up by 50 percent, and the quantity supplied increases by an equivalent amount.
c) The price of a book increases by 10 percent, and the quantity supplied increases 20 percent.
d) In the above illustrations, which are more elastic and which is the least elastic? Why?

4) What type of supply and demand elasticity would the given goods have and why?

a) Bridge tolls
b) Beachfront properties
c) Gourmet coffee
d) Luxury automobiles
e) Gasoline
f) Cell phones
g) Computers
h) College tuition

Now that you are an expert on elasticity, what do you think would be the best time of year to increase prices, and why? What do you think the elasticity is in the flower business? Use graphs and hypothetical tables to support your answer.

International Economics, Economics

  • Category:- International Economics
  • Reference No.:- M91974

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