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Activity (Applied Economics Group 2)

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17 views

Activity (Applied Economics Group 2)

Uploaded by

wendylynybanez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Applied Economics (Group 2)

Activity
In a one whole sheet of paper. Answer the following activities.
Activity 1. Define the difference between price floor and price ceiling. (10 points)

Activity 2. Write 1 example of situation showing surplus and shortage. (5 points


each.)

Activity 3. Answer the following problems. Show your solution. Write your explanation
how you determine the change in demand is elastic, inelastic and unitary elastic. (15
points each)

1. A company sells 1,000 units of a product at Php 500.00 per unit. When the
price decreases to Php 400.00, the quantity demanded increases to 1,400
units. What is the price elasticity of demand?

2. The price elasticity of demand for a product is -0.5. If the price of the product
increases by 10%, by how much will the quantity demanded change?

3. A store increases the price of a product from Php 100.00 to Php 250.00. As a
result, its total revenue from that product decreases from Php 5,000.00 to Php
4,800.00. What is the price elasticity of the demand?
Rubrics
Activity 1

Criteria Points Description


Definition of Accuracy 5 points Clearly defines both a
price floor and a price
ceiling, distinguishing
their economic roles
correctly.
Clarity and Conciseness 3 points The explanation is clear,
concise, and free of
unnecessary details or
confusion.
Grammar and Spelling 2 points Uses proper grammar
and spelling.

Activity 2

Criteria Points Description


Relevance of Example 2 points Provides a situation
clearly illustrating a
surplus and a shortage.
Explanation and Analysis 2 points Explains how the situation
leads to surplus or
shortage and connects it
to basic supply-demand
principles.
Clarity of Writing 1 point Example is clearly written,
easy to understand, and
uses correct grammar.

Activity 3. For the explanation.

Criteria Points Description


Interpretations of 5 points Correctly explains
Elasticity whether the result is
elastic, inelastic, or
unitary elastic based on
the value of PED. The
reasoning is tied back to
the calculated value.
Price Floor

A price floor is the minimum legal price that can be charged for a good or service.
Governments typically set price floors to ensure that producers or workers receive a
fair income. The price floor is set above the equilibrium price (the price at which the
quantity supplied equals the quantity demanded). This can lead to an excess supply
of goods because at the higher price, producers are willing to supply more than
consumers are willing to buy.

Example: Minimum wage laws act as a price floor for labor. If the minimum wage is
set above the equilibrium wage, more people may want jobs (increased supply of
labor), but fewer employers are willing to hire workers at the higher wage (decreased
demand), which can result in unemployment.

Price Ceiling

A price ceiling is the maximum legal price that can be charged for a good or service.
Governments implement price ceilings to protect consumers from excessively high
prices, especially for essential goods. The price ceiling is set below the equilibrium
price, which can result in excess demand because consumers want to buy more at
the lower price, but producers are less willing to supply the product.

Example: Rent control is a common price ceiling where the government limits how
much landlords can charge for rent. This leads to higher demand for apartments
(more people can afford to rent), but fewer landlords are willing to rent out properties
at the lower price, leading to housing shortages.
Difference Between Surplus and Shortage
1. Surplus:
A surplus occurs when the quantity supplied of a good exceeds the quantity
demanded at a given price.
This typically happens when prices are above the equilibrium price (such as with a
price floor).
In this case, suppliers produce more goods than consumers are willing to buy,
leading to unsold stock or excess inventory.

Example: If the government sets a price floor on agricultural products, farmers may
produce more crops than consumers want to buy at the higher price, leading to a
surplus of crops.

2. Shortage:
A shortage occurs when the quantity demanded exceeds the quantity supplied at a
given price.
This often happens when prices are below the equilibrium price (such as with a price
ceiling).Consumers want to purchase more goods at the lower price, but producers
cannot or do not want to produce enough to meet that demand, leading to an
insufficient supply.
Example: If a price ceiling is imposed on gasoline, the demand for gas will increase
because it is cheaper, but suppliers may not want to sell gas at the lower price,
leading to gas shortages.

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