This paper under the title "Price Elasticity of Demand" focuses on the fact that if corn is discovered as an alternative source of energy, its demand increases prompting a scarcity of corn. The buyers will compete for the scarce corn thereby pushing the price of corn up. …
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If more farmers decide to produce corn, the demand will be met. The price of soybean in relation to corn also matters. The increase in the price of corn prompts demand for soybean but demand for soybean also depends on tastes and preference and income. Although the price of soybean decreases, it does not result to increase in its demand since preference is on corn which has multipurpose use hence income will be spent on corn and buyers will incur the opportunity cost of buying soybean. Since both kinds of cereal use same raw materials, farmers will shift production factors from a production of soybean to corn production hence reducing acreage on soybean for planting more corn.
The price of commodities is determined by forces of demand and supply. As long as the quantity of corn oil produced is equal to quantity demanded, the market will be at equilibrium price and quantity. Since the demand for corn is up it means demand for corn oil is also up hence quantity demanded is higher than quantity supplied. The buyers will compete for the available corn oil hence pushes the prices up. Baumol & Blinder (2009 p 57) argues that quantity demanded is also dependent on; income, tastes, the price of other products and population size. If the price of corn oil goes up, buyers in response to price change will cut a quantity of demand of corn oil to alternative sources of energy which are cheaper especially if the price elasticity of demand of corn is high. If buyers have increased income and have high-income elasticity they buy more corn oil thus increasing demand and pushing prices up.
PEoD is used to measure the response of consumers demand to price changes all factors held constant (Moffat, 2010). It’s the proportionate change in quantity demanded over a proportionate change in price. PEoD is affected by factors such as; substitutes, a degree of luxury, time period and price points (Bochholz, 1996). The higher the price elasticity, the more sensitive consumers are to price changes (Moffat, 2010).
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(“Price Elasticity of Demand Assignment Example | Topics and Well Written Essays - 500 words”, n.d.)
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(Price Elasticity of Demand Assignment Example | Topics and Well Written Essays - 500 Words)
“Price Elasticity of Demand Assignment Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/macro-microeconomics/1566647-price-elasticity-of-demand.
The author states that income elasticity of demand can be defined as the measure, connection or relationship between Δ in quantity demanded goody and Δ in actual income. Cross Price Elasticity (CPE) is the rate at which quantity of one good response as a result of Δ in the price of another commodity z.
If the demand for corn increases due to its use as an alternative energy source, there will be a decrease in the supply of corn's substitute such as soybean. This is because change in the price of related goods is a determinant of demand (McConnell & Brue, 2002).
Individuals would not buy the product as they used to and the quantity demanded will fall whilst the firms would supply more of the product i.e. the supply curve will move to the right. In the case above, if the demand for corn increases, there would be a shift in the demand curve to the right.
One of the major concepts of microeconomics is price elasticity of demand, which refers to sensitivity levels of demand for a given product or service to changes in its price. The elasticity of demand co-efficiency is the percentage change in the quantity of a product or frequency of a service in reference to percentage variation in price.
These factors may include the consumers, and the market competition among other factors. Considering the price strategy that is demand based, the market would always set out a price for a commodity after researching the desires of consumers and verifying the price range which is acceptable to the market target.
(For example going from 7 to 10 is a 30% change while going from 10 to 7 is a 42.86% change).
When elasticity is equal to one it is called unit elasticity and the change in quantity demanded causes a proportionate change in price. So a price change in either direction will not yield a change in revenue.
The consideration which we pay for a product at a certain quantity is called the price of the product. When we talk of the product price, we mean market price. That is the price at which the product is sold to all buyers in the market. The quantity of a product that we purchase at a certain price is called the demand of the product.
A certain good in the market can obtain several forms of demand elasticity - elastic, inelastic, and unitary elastic. A product that is elastic obtains a condition wherein the percentage change in the quantity demanded is greater than the percentage change in price.
Price elasticity of demand can be defined as “a measure of responsiveness or sensitivity of consumers to price change”. With some products, consumers have a higher responsiveness to price changes. These products are said to have a relatively elastic demand. On the other hand, some products have a low responsive to price changes.
The easier it is to swap, the more elastic the demand of such a product is (Mankiw 90).
Type of want is satisfied by product; if the product satisfies basic needs or necessities such as medical care, basic food stuff and housing, then the price elasticity of such
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