Question

In: Economics

Subject: Gold between 2015-2019: Explain briefly what has happened to prices of the good you have...

Subject: Gold between 2015-2019:

Explain briefly what has happened to prices of the good you have chosen over the time period stated:

  1. Use the model of supply and demand and provide a textual and diagrammatic explanation, using the supply and demand curves for the changes in the prices of the good
  2. Explain the elasticity of supply and demand of the good

Solutions

Expert Solution

The good I have chosen here is smartphone. With the advent of smartphones, we roam around without watches but not smartphones. Such is the impact of it in our daily lives (I'm typing this in my smartphone too!). Year 2015 saw the early stages of 4G which promised high speed internet therefore taking burden off us to search for the nearby Starbucks or a public wifi to get things done quickly. Therefore the demand surged heavily from 2015, and putting a pressure on the supply side as well. So, the supply equally surged to cater to the increasing demand mainly through two ways: new firms in the market and increased production capacity. As a result the mobile prices dropped. A mobile which costed $800 in 2014, just costs around $550 -$600. Such is the impact of 4G, which further pushed the smartphone companies to roll out new additional features just to stay in the market. Take a look at the graph to visualize the fall in prices.

The price P1 was present at the start of 2015. As the demand increases steadily, the supply end has also pushed further thus bringing down the prices to P2.

As far as the elasticity is concerned, smartphones have elastic demand, i.e. a small shift in the price will have a greater impact in the quantity demanded. This is due to the presence of various alternatives. When price is increased, the consumers will obviously opt for an alternative or a substitute. The price elasticity of supply is almost inelastic. From the graph, you can observe that the supply curve has a high slope meaning that for any particular change in price, there is just slight change in the supply. Hence smartphones have inelastic supply.

Hope this helps. Do hit the thumbs up. Cheers!


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