Supply And Demand

Supply And Demand

Introduction

The supply and demand is an important element in the field of economics. The economic trends are determined by the supply and demand along with the levels of prices of the commodities and services in the industries. The supply and demand model is considered as the important tools that determines the prices in the markets of the economy. The level of prices fluctuates according to the demands and supplies of the products and services in the market.

The supply and demand of the products are the major factors that derive the prices levels. The following section aims at discussing in detail about the supply and demand aspect and some important concepts that are related to the supply and demand.

Discussion

Task A:

1. Elasticity of demand

Demand elasticity measures that how much the change in the quantity demanded will be occurred if other changes are occurred in other factors. The example of it is the price elasticity of demand. The changes in the demand is measured by understanding that how there is element of elasticity and inelasticity in responding to changes in the prices. There are various determinants of the elasticity of demand. These involve the following.

The availability of the substitutes in the market: The greater the availability of substitute, the demand curve is more elastic.

The importance and significance of the product: The less expensive will the product; the demand curve will be less responsiveness.

The durability of the product: The more the product will be durable; the demand curve will be more responsive and elastic.

The time frame: The more availability of time to adjust, the more responsive the demand curve will be.

2. Cross-price elasticity

The cross-price elasticity determines the percentage change in the quantity demanded of one product when the prices of the other product changes. If the two products are the substitutes and when the price of one substitute product increases, then the demand of other substitute product will also increase. In the same way, if the two products are complements and if the price of any one product increases, then this will cause the decrease in the demand of both the products.

3. Income elasticity

The income elasticity of demand determines the sensitivity of the demand for the product in the market when the changes occur in the income level of the people that demand that product. The income elasticity of demand is calculated as the ratio between the percentage changes in demand to the percentage change in income.

The elasticity of demand is positive for the normal goods because the quantity demanded for normal products will increase with the increase in income. When the income level increases, the demand for the luxury products and services also increases at a higher rate as compared to the quantity demanded for necessities. The elasticity of demand is negative for the inferior goods because when the income level increases, the demand for the inferior goods decreases.

Task B: Elasticity coefficients

The elasticity coefficient is calculated as follows:

Elasticity of demand: In this elasticity, the changes in ...