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Supply and demand - Essay Example

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Price elasticity of demand conforms to the responsiveness to per unit quantity changes in demand upon a change in the product’s prices (%change in quantity demanded÷%change in price) (Benassy, 2008). Price elasticity of demand becomes when demand is greater than one, that is,…
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Supply and demand
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Supply and demand

Download file to see previous pages... Logically, this will ensure maintenance in the revenues. It is evident that elastic demand is dependent on sensitive buyers compared to inelastic demand all influencing shifts in the quantity of units consumed.
Cross price elasticity of demand ensues when the unit prices of a certain good escalate thus forcing an increment on the demand for a different product (Anderson, 2006).CPEoD= (%Δ. Therefore, CPEoD affects demand of substitutes since an increment in the price of a product (x), leads to increment for the product Y’s price, its substitute. CPEoD influences complementary goods on the basis that an increment or decrement in the demand of one product equally affects the other since they are consumed together (Benassy, 2008).
Substitute goods refer to products whose utility supplements the function of another product. For instance, one can substitute tea with coffee. Therefore, increase in tea price while the price of coffee is constant results to high demand of coffee (Anderson, 2006). On the other hand, complements are goods that are not necessary and therefore, increase in their price leads to low demand. For instance, décor and design, which enhances serene of a place, amount to complementary goods (Benassy, 2008).
Income elasticity of products’ demand measures the relationship that exists between change in quantity of demand and income change. A rise of income leads to increase in demand of certain products or vice versa. Normal goods always bring a positive elasticity of demand therefore, as income rises, demand also increases (Anderson, 2006). On the other hand, inferior goods results in a negative income of elasticity of product demand. Demand decreases as income increases.
The availability of substitute product is the most determinant of cost elasticity of demand. The more goods and services have better substitutes, the more the demand is elastic for those goods and services. For instance, an increment in coffee prices ...Download file to see next pagesRead More
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