Demand, Supply, Price Ceilings And Price Floors

Consumer behavior or elasticity is a consumer’s response to a change in price of a good or service. Consumer behavior allows a consumer to rank and prioritize purchases according to their elasticity of certain goods and their dependence on others (Managerial Economics, 2010). When consumers recognize a change in price and respond strongly, they can adjust their consumption and therefore have their demand for that item become elastic. Automobiles tend to have elasticity in them in regards to make, model, and features that the consumer is willing to pay for. Basic models and good fuel mileage become important as income goes down and elasticity for automobiles goes up. Merriam-Webster defines competition in business as "the effort of two or

Normal goods or superior goods are those products that follow changes in a person’s income. When applying the formula of income elasticity to normal good’s the coefficient will be positive meaning the consumer will demand more of these goods as income rises. However, if the consumer’s

According to the elasticity of demand law, a change in the quantity demanded leads to a change in price of the product. As such, if there were an increase in demand for pharmaceutical products, there would be an increase in the prices, while a decrease in these prices leads to a decrease in prices of pharmaceutical products. However, goods such as Geffen and Veblen do not obey the law of supply and demand, as

A price ceiling set below the equilibrium price means that the quantity supplied ____ the quantity demanded so that a ____ exists.

Consumer Surplus is the difference between what the consumer is willing to pay and the price they actually have to pay.

The price ceiling is the maximum price a seller is allowed to charge for a product or service. An impact on society includes when the prices are so high of a product, that no one can buy it. A price floor is the lowest legal price a product or service can be sold at. When market price is at its lowest, it may still be too high for consumers to purchase products. Governments can intervene for any purpose, and they are the ones who set these price controls.

A sudden increase or decrease in the supply of a particular good is also known as a supply shock. A supply shock is an event that suddenly changes the price of a product or service. This sudden change affects the equilibrium price. The two types of supply shocks that exist are the Negative Supply shock and the Positive Supply shock. A negative supply shock, which is a sudden supply decrease, will raise the prices and shift the aggregate supply curve to the left. A negative supply shock can cause stagflation due to the combination of raising prices and the falling output. Meanwhile a positive supply shock, an increase in supply, will lower the price of a good and shift the aggregate supply curve to the right. A positive supply shock could be advancement in technology which most certainly makes production more efficient which thus increases output. For example a positive supply shock could be shown in the early 1990s when communication and information technology exploded which resulted directly in productivity increase, and an example of a negative supply shock would be that of the high oil prices associated with Arab oil embargo of the early 70s is the classic example of this occurrence. Any other factor could also produce this effect. Such as if

consumer as an inflation in product pricing. Inflation then puts a greater strain on the consumer.

Negative externalities are detrimental third-party effects caused by the production and/or consumption of a good. A public good is a good provided free of charge to the consumer, by the government. A public good is non-excludable and non-rivalrous. A merit good is a good that gives positive externalities upon production and/or consumption. A merit good is non-excludable, yet rivalrous.

1. Economics – the efficient allocation of the scarce means of production toward the satisfaction of human needs and wants.

In unwholesome demand, the customer should not desire the product, yet the customer wants the product badly. Best example of unwholesome demand are cigarettes, alcohol, pirated movies, guns etc.

Another limitation to marginal utility is the variance in prices. Not only from one good to another, but in the same goods over a period of time. Because money is so closely tied with one’s utility, (it is one of the only utilities that doesn’t show any signs of diminishing marginally utility,) price impacts the amount of utility that is received from a good or service. Between two similar products, if one costs significantly less money, it will generally increase utility more. Similarly, if a price of the same product continues to rise, the utility gained from buying it may decrease. Because you’re spending more money on the same product, usually the amount gained will decrease because it may be harder to afford. Although the

When a good is a necessity it is something that is needed; unlike a simple desire to have something. These items have more of an inelastic demand even if the prices fluctuate. Wheat is a rich commodity in our country. The demand for wheat is inelastic. No matter how high the price rise the demand will still remain high in view of the fact that the price is determined by supply and demand. There are many producers of wheat which does not raise the profit level much for the farmers since their competition are all selling identical products. Other items, such as; basics in personal care, food, commodities, and medicine. The basic items that are needed to survive. Demands for these items may change over time but will not change very much. Their value can fluctuate if there are comparable substitutes available. Personal care items such as clothes and shoes are not in a single category where choices are concerned. There are a wide variety of manufactures and stores that sell them. So if the price raises the demand would be elastic because of substitutes. Food as a basic need is inelastic. However, if the prices were to rise on beef consumers could choose to substitute eating chicken, turkey, or pork instead. So even though the prices rose the demand would not increase because of acceptable substitutes. Medical service as a necessity is inelastic in demand. This is a service that is unquestionably needed for survival.

Elasticity of demand represented as “Ed” is defined as a “measure of the response of a consumer to a change in price on the quantity demanded of a good” (McConnell, 2012). Determinants for elasticity of demand would include the substitutability of a good, proportion of a consumer 's income spent on a good, the nature of the necessity of a good and the time a purchase is under consideration by the consumer. Furthermore, elasticity of demand is calculated with this formula:

(ii) Government production at lower priceswe have a direct governmental influence on allocation because the government itself undertakes the responsibility of the production of the positive external good. supplies it at a lower price, in some cases free of charge