Question

Select a product market that is of interest to you. Use what you know about this industry and knowledge from this course to answer the questions below. 1. a. Explain what you believe is the elasticity of demand in this market. Is it elastic or inelastic? Explain why? b. Provide an estimate of price and quantity sold in a recent period for this industry based on available data or estimates. Use whatever parameters are available (i.e. for a recent year for a specific market like Canada, U.S. or global) c. Using the price and quantity you’ve identified, consider what would happen if this price were to increase by 10%. Estimate the new industry quantity based on your statement in answer a. about whether or not this industry would be elastic or inelastic. Calculate the elasticity coefficient based on your price and quantity estimates and the industry revenue before and after the price increase. Do not use data from two different periods. Just consider on price/quantity combination and look at what would happen to that quantity if there were a 10% price increase. 2. Identify and explain one factor that has caused a shift in the demand curve (not what might happen discuss something that has happened in this industry in recent years). Illustrate the impact on the market using supply and demand curves. 3. Identify and explain one factor that has caused a shift in the supply curve. Illustrate the impact on the market using supply and demand curves. 4. Identify and explain one way that government intervenes in this market. Any form of government intervention can be discussed. Explain the government's economic objective and illustrate the impact on the market using supply and demand curves.

Answer 1

Product : Colgate Toothposle a) he can assume ed = 6 -2.5 Demand is elastic because . de availabelity to many close brand of toothpaste in the market b) P = $3 0 =50,ooo Recent records of soles of thes brand tooth poste in a us state c) ed % no % AP -2.5 - % Do To % AO = -25% Theis , quantity sold will fall by 25% due to p increase

2. Increase in consumer incomes will increase demand for the in the mocket Demand curve will shift to the right, leading to an increase in both p' and o soed of good the market good in P р C р P 3 Increase in cost of production of tooth poste due to increase in the cost of inputs used supply owe to left P p will shift Р st s p! 1 е o v D NOTES MAY 2016 SU MO TU WE TH FR SA 3 5 6 7

4. Type of government intervention: Price ceiling

It is a government mandated price set below the market equilibrium price in order to prevent the market price from increasing further than the mandated price. Though meant to increase consumer welfare, it ends up harming the consumers, as at the low mandated price, quantity demanded of the good exceeds the quantity supplied, leading to shortage in the economy.

Even the most needy buyers willing to pay a high price are unable to procure the good due to the government mandate.

price supply P* PC PC shortage 1 demand I Qs=Q* PC quantity shortage = Qo - Qs