Principles of Economics Assignment: Elasticity and Supply Analysis

This economics assignment delves into core economic principles, specifically focusing on the concepts of demand, supply, and elasticity. The assignment analyzes the elasticity of demand, examining how changes in price affect the quantity demanded, and illustrates this using a demand curve. It further explores the concept of perfectly elastic supply, providing an example and a visual representation through a supply curve. The assignment references key economic texts and models to explain these concepts, making it a valuable resource for students studying economics. This assignment provides a clear understanding of how price changes impact both demand and supply, and offers a comprehensive overview of economic principles.

ECONOMICS ASSIGNMENT

Contents
Question 1..................................................................................................................................3
Question 2..................................................................................................................................4
Reference....................................................................................................................................5

Question 1
Figure 1: the price elasticity of demand on a demand curve
(Source: Greenlaw, Shapiro & Taylor, 2018)
On a demand curve as the price rises and the quantity demanded of that product reduces, the
elasticity of that product increases. The changes in the quantity demanded in the upper part of
the demand curve are proportionately more than the change in the price. On the other hand, as
we move down along the demand curve, the change in the quantity demanded is
proportionately less than the change in price (Greenlaw, Shapiro & Taylor, 2018). Therefore,
we have elastic demand in the upper part of the curve and inelastic demand for the good in
the lower part of the demand curve.

Question 2
Figure 2: the perfectly elastic supply curve
(Source: Dean et al. 2017)
The example of perfectly elastic supply can be that of watches. The seller sells a certain
quantity of watches at the price level P, as shown in the above diagram and that is why the
supply curve in this case is horizontal. However if the price drops a little the seller would
immediately stop supplying watches leading to a 0 supply in the market (Dean et al. 2017).
On the other hand, if the price of the watch is more than P in the above figure, the seller
would sell infinite number of watches in the market and hence Q increase almost without
limit response to increase in the price level. An elastic supply curve of a product is shown by
a horizontal curve.

Reference
Dean, E., Elardo, J., Green, M., Wilson, B., & Berger, S. (2017). Principles of
Microeconomics-Scarcity and Social Provisioning.
Greenlaw, S. A., Shapiro, D., & Taylor, T. (2018). Principles of Economics-2e: OpenStax.