Assignment 3: Effects of Price Changes

Price changes can have a significant impact on the overall economy of a nation. A product experiencing price change can lead to an exponential change in the prices of related products. The price of oil provides a good example of this concept. As oil prices increase, the price of gasoline also increases. As almost all products rely on gasoline, either in the production process or in the distribution process, the prices of these products also increase. As prices increase and incomes of consumers remain steady, spending decreases and products or services that have an elastic demand suffer. This assignment looks at some products you may be familiar with and allows you to analyze how price changes impact the overall economy.

Tasks:

Consider the last product or service you purchased for more than $50, excluding gasoline.

• If the price of that product or service went up by 10% overnight, how would you adjust your behavior in the short term?
• How would you adjust your behavior in the long term?
• If you decide not to buy this product again, what will you buy instead?
• Analyze who will be more sensitive to price changes in what kind of products.