ABSTRACT
This chapter presents a series of applications of the supply and demand model. It utilizes the supply and demand model to analyze the impact of changes in wages or advertising. The chapter examines the supply and demand model to analyze the impact of price floors, price ceilings, excise taxes, and subsidies on consumers, producers, and the government. It explains the concepts of consumer surplus, producer surplus, and deadweight loss and how these concepts can be used to evaluate the impact of government policies. The chapter also utilizes income elasticity of demand and cross-price elasticity of demand to analyze how the demand for a particular product is affected by changes in incomes and changes in the prices of substitute and complementary goods. For most goods and services, the availability and closeness of substitutes is the major determinant of the price elasticity of demand.
