Elasticity from a demand perspective refers to the response of the demand for a good as it relates to the changes in the price. When the consumers are responsive to a price change of a good or service it means the demand is relatively elastic. Conversely, when consumers are less rseponsive to a price change a good or service this demand situation is described as inelastic. More specifically, our text defines price elasticity as “the relative amount by which the quantity demanded will change in response to change in the price of a particular good” (Miller p. 415). Consumer’s tend to be sensitive to large price changes of common goods and may choose to purchase other goods and services or refrain from buying for a period of time. Two different markets will be depicted each describing the determinants of elasticity demand which cause the goods to be elastic or inelastic.
When a good is termed as elastic it likely has many substitutes. Many common grocery items are said to be very elastic because in today’s grocery store there many food alternatives to choose from. Recently, there has seen an increase in the price of eggs due to an ourbreak in bird flu. Therefore, egg suppliers have less inventory for their distributors causing a shortage. This shortage has caused an increase in the price of eggs. The shortage is impacting consumers as well in the grocery store. In a recent article, “Texas-based supermarket owner H-E-B recently announced it is limiting the number of cartons of eggs its customers can buy at all its stores” (La Monica). When the price of eggs rises above the norm, consumers simply switch to less expensive alternatives for cooking or simply avoid buying eggs...
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...usly evaluates the price and demand of their products to increase their profitability.
In conslusion, the eslasticity demand of a product depends on many determinants. The number of subsitiutes are a key factor for companies to consider when pricing their goods and services. This is challenging for companies as they are in the business to make money while trying to cover their costs and beat their competition. Therefore, busineses try to get the highest price for their goods and services without sacrificing demand. A consumer’s budget and disposable income also plays a key role in the demand for good and services. Lastly, the increases in prices may only be temporary and the consumer may not necessarily notice the change. In a free market system the market will eventually right itself over time to the natural equilibrium for the good or service.
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