Question

Answer the following questions: Q1. Describe the applications of elasticity in various fields. Q2. Imagine you are owner of a fast food joint in Bahrain. What are the challenges you faced during Covid-19 pandemic? How will you overcome challenges in order to sustain business? Q3. How does the change in determinants of supply reflect in the shift of supply curve? Draw appropriate diagram.

Answer 1

Answer 1

Applications

• As the price of a good rises, consumers will usually demand a lower quantityof that good; they may consume less of that good, substitute it with another product, etc.
• The greater the extent to which demand falls as price rises, the greater the price elasticity of demand. Conversely, as the price of a good falls, consumerswill usually demand a greater quantity of that good: consuming more, droppingsubstitutes, etc
• Further, elasticity will normally be different in the short term and the longterm. For example, for many goods the supply can be increased over time bylocating alternative sources, investing in an expansion of production capacity, or developing competitive products which can substitute. One might therefore expectthat the price elasticity of supply will be greater in the long term than the shortterm for such a good, that is, that supply can adjust to price changes to a greater degree over a longer time.

• The concept of elasticity has an extraordinarily wide range of applications ineconomics. In particular, an understanding of elasticity is useful to understand thedynamic response of supply and demand in a market, to achieve an intended resultor avoid unintended results. Supply and demand does not always guarantee buyersor sellers; this depends on their competitive positions within the market. For example, a business considering a price increase might find that doing so lowersprofits if demand is highly elastic, as sales would fall sharply. Similarly, a businessconsidering a price cut might find that it does not increase sales, if demand for theproduct is price inelastic.
• Elasticity is also used to analyze social policies.PED's could be used to determine the incidence of taxes and the demand response to the increase pricesprices

Answer 2

In this pandemic i have to face so many challenges at bahrain, the people who don't want the food from outside because of the covid19. And the rule of government that limited the number of people can come and go in restaurant and can't eat in here. And also hygiene issues. I was thinked that can't make it i will have to close somedays and i will face the financial problems, so that somedays later government says reopen the restaurant with several rules. There is the challenge i have to face. Limited number of persons at time in restaurant and sanitizer, handwash in th front door to clean their selves. And always wear mask. So i did all the things mentioned above so i am over comed my financial problems.

Answer 3

Determinants of Elasticity of Demand
1. Availability of Substitutes
2. Time
3. Importance of being Unimportant (Proportion of Income)
Availability of Substitutes – the more substitutes, the more choices you have when the price changes. This will cause a larger change in quantity demanded. Therefore, the more substitutes the more elastic demand is.
Time – the more time that an individual has, the more substitutes that can be developed, and
therefore the more elastic demand is.
Proportion of Income – when a good is a relatively small proportion of income, then an increase in the price of the product has little impact on demand and is therefore relatively inelastic.