Question

Creating an Economic Problem by yourself，and answer these four question

a）why you create this problem?

b) what are some of the concepts or ideas that you want to try to convey or teach with this problem?

c) which details or facts of the example are relevant and why?

Answer 1

Lets start with a problem where we try to analyze the rising heat temperature on sales of ice cream. we wish to analyze the consumers demand and whether the firms increase/decrease prices.

a) why I created this problem is because I wish to understand the concept of supply demand in analyzing whether I would be consuming more ice creams during the summer seasons. In response to rise in demand, will firms increase prices to maximize profits.

b) The key concepts are:

1. Elasticity of demand: Since there are many substitutes for ice cream, firms will be cautious against raising ice cream prices. It means, that products with high elasticities have more substitutes.

2. Substituibility

c) The key detail is rise in temperature which increases demand for the required product. Thus, there is shift in demand curve, indicating increase in demand. Thus, if there is limited supply, prices will increase. However, how the equilibrium point is received depends on the prices of substitutes( beverages, bottled water).