Question

Answer the following questions with short paragraphs. Use economic reasoning to defend it. Make sure to answer all parts!

What does price elasticity of supply/demand measure? How does it relate to opportunity cost? Can you provide an example of how a change in opportunity cost could change the price elasticity of supply or demand in a market?

Answer 1

1, Price elasticity measures the responsiveness of the quantity demand or supplied of a good to a change in its price. It is computed as the percentage change in quantity demand or supplied divided by the percentage change in price. Price elasticitly of supply measures the responsiveness to the supply of a good or service after a change in its market price. According to basic economic theory, the supply of a good will increase when its price rises.Elastic means the product is considered sensitive to price changes.

2, Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.If seller incur greater opportunity cost, then they need to receive a higher price, which generates the law of supply. If sellers incur greater production cost, then they need to receive a higher price, which also generates the law of supply.

3, A higher money price encourages more production or a greater quantity supplied while at the same time requiring buyers to give up more resources.when buyers face higher opportunity costs to acquire a particular good or service, they react by seeking less costy substitutes, thereby reducing quantity demanded.One example of opportunity cost is in the evaluation of foreign buyers and their allocation of cash assets in real estate or other types of investment vehicles.During the downturn in circa June or July 2015 of the Chinese stock market, more and more Chinese investors from Hong Kong and Taiwan turned to the US as an alternative vessal for their investment dollars, the opportunity cost of leaving their money in the Chinese stock market or Chinese real eടtate market is the yield available in the US real estate market.