Economics Assignment? Please help me>>>>>>?

Question

1. Why both rich and poor experience scarcity?

2. Two customers go to the fish counter at a supermarket to buy some fish. Neither looks at the price. Customer A orders 1 kilo. Customer B orders RM30 worth. What is the price elasticity of demand for fish of each of the two customers?

Answer 1

1. I guess this is simply about supply and demand. Look at oil and the increasing price. Many people in rich countries want oil e.g. for their cars and for electricity and likewise can afford to buy it but there is a limited supply of oil available. So as more and more people want the oil but there is only a set amount available the price rises until demand equals supply. Scarcity exists because more people want the oil than there is oil available, so the price will continue to rise until some people decide that it is more viable to buy a substitute item to replace oil.

Oil is quite price inelastic because people depend on it and there are not many close substitutes, so it takes larger price rises to reduce demand. But chicken say on the other hand is more elastic, so if scarcity was present where more people demanded chicken than there was chicken available the price of chicken would not rise as much because people could more easily switch to substitute items such as Beef etc.

2. Consumer A is more price inelastic than Consumer B who could be considered price elastic.

A is inelastic because they have not even looked at the price and require a set amount of fish regardless of the price. Presumably if they came shopping again and the price had changed, it would not bother them and they would still require the same amount of fish.

B is more elastic because as the price changes the quantity of fish that they get will change. E.g. if the price goes up then RM30 will buy less fish and visa versa.