Read the following reference articles on supply and demand
Schenk, Richard. (2009). The Model of Supply and Demand.
CyberEconomics. Retrieved June 6, 2011 from: click here
Rittenberg Libby and T. Tregarthen. (2009). Chapter 5: Elasticity and A Measure of
Response. Section 1 and 2 only. Principles of
Microeconomics. FlatworldKnowledge.com. Retrieved June 6, 2011 from: click
here (You can click on "Table of Contents to find the appropriate section)
Milk in the news:
Arnold, W. (2007). A Thirst for Milk Bred by New Wealth Sends Prices Soaring. New
York Times. Retrieved June 6, 2011.
Dohery, Regan. (2007). Milk Demand Stays Strong Despite High Prices. Reuters.
Retrieved June 6, 2011.
Please write a 4 page essay that addresses the following questions on the market for
milk. (for this case, keep it simple, don't worry about whether the milk is organic,
2%, whole, skim etc.)
1. Explain what happens to price and quantity of milk when the following events
occur:
a. An advertising campaign highlights scientific studies that find drinking milk can
help reduce weight gain.
b. There is a mad cow disease epidemic.
c. The price of milk decreases.
d. The government decides to implement a price ceiling on milk.
For each event, you must specify how it effects either demand, quantity demanded,
supply, or quantity demanded. It is also important to demonstrate how the change
will affect the market demand or supply curve. Also, be sure to state any assumption
you are making regarding the relationship of the event and milk.
e.g. There is a sale on cookies.
Assume that cookies are a complement to milk. If cookies are cheaper, then the
consumer will increase quantity demanded of cookies. If consumers buy more
cookies, then there will be a need for more milk to go with the cookies so the
demand for milk will increase. This event causes a shift of the demand curve to the
right. The shift will cause price and quantity of milk to increase.
2. What are some of the determinants of the price elasticity of demand?
3. Read section 1 and 2 of Chapter 5. What type of elasticity (elastic, inelastic, zero,
etc.) do you think milk has based on your answer above. Explain.
4. Based on your answer above, what happens to total revenue when the price of
milk is increased. Why?
Recall from the powerpoint presentation:
Inelastic goods (goods in which consumers are less responsive to changes in price):
e1
In this course, we use the absolute value of elasticity. It is always a calculated value
of -1 due to the law of demand.
Case Assignment Expectations:
Use concepts from the modular background readings as well as any good quality
resources you can find from the cyberlibrary or other internet search engines. Pleas
be sure to cite all sources within the text and provide a reference list at the end of
the paper.
Length: 4 pages double spaced and typed.
The following items will be assessed in particular:
Your ability to understand an application of supply and demand.
Some in-text references to the modular background material (APA formatting not
required).
The essay should address each element of the assignment. Remember to support
your answers with solid references including the case readings.