In this module, we delve deeper into market shocks to both demand and supply and learn how demand and supply are related between markets. If there is demand for a product, there will invariably arise a supply. So society’s demand for food products give rise to the demand for ingredients to make food products, and demand for crops and animal protein that is the raw material into the final good. Because demand gives rise to supply producers respond by making goods at all stages of production.
We will also determine the size of changes in the market by looking at the extent to which changes in price affect changes in quantity supplied and demanded. The laws of supply and demand tell us the direction, but it’s useful to know the magnitude to make estimates about how producers and consumers’ values are affected.
We wrap up this module by revisiting shocks to the market and what happens to quantity demanded and supplied when consumers and producers respond differently to shocks in the market. This is where it really gets interesting because after the module, you should be able to read any newspaper article regarding agriculture markets and make estimates about what is happening, why it’s happening, and what will be the effects.
Upon completion of this module, you will be able to:
- Explain the marginal perspective for arriving at supply (MC) and demand.
- Identify total revenue, producer surplus, and total cost using the supply curve.
- Identify total revenue, consumer surplus, and total value using the demand curve.
- Discuss value added resulting from derived demand between markets.
- Articulate the importance of elasticity in market analysis.
- Identify changes in markets as a results of shock size and elasticity of demand/supply.
- Read Chapter 5 in the textbook.
- Read this module.
- Read the link for each of the examples as you are reading the module.
- Choose the assignments you will do from the end of the module.
Taylor, T., & Greenlaw, S. (2014). Chapter 5: Elasticity. In Principles of economics. OpenStax College. Retrieved from: https://open.bccampus.ca/find-open-textbooks/?uuid=d7fed8c0-e900-4bef-b414-14f48122cba2&contributor=&keyword=&subject=Economics
Key Terms and Concepts
- Consumer surplus
- Cross-price elasticity
- Income elasticity
- Marginal cost
- Marginal revenue
- Market equilibrium
- Price elasticity of demand
- Price elasticity of supply
- Primary good
- Producer surplus
- Secondary good
- Supply chain
- Tertiary good
- Total cost
- Total revenue
- Total value
- Value added
- Willingness to pay
- Unitary elastic