Economic elasticity

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Economic Elasticity

Demand & Supply

Introduction:

Economic elasticity is a tool which helps to measure different economic variables with one another. For an example it helps to identify and measure the economic variables like price and demand. Measurements of economic variables are important in economic activities which help us understand the economic activities and in decision making. It helps us understand the problem of scarcity, which is the problem of fulfilling the unlimited wants of humankind with limited or scarce resources.

Origin:

Alfred Marshall (1842 – 1924) contributed much to economics. He is the first one to introduce the demand supply analysis and the concept of elasticity. According to Marshall "The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price".

Price Elasticity of Demand:

According to the Elasticity of Demand, if the price of the commodity goes up then the quantity of the commodity falls; both are inversely proportional to each other.

Types of Economic Elasticity:

Elasticity is the percentage of change in quantity with respect to the change in price. There are three types of economic elasticity; they are Elastic, Inelastic and Unitary Elastic.

Elastic Demand and Supply

When the price of a commodity falls to a certain percentage but the impact of the price increase leads to drastically reduce the demand of the commodity to more than proportionate levels then it is called elastic demand. If the elasticity is greater than or equal to one then the curve is considered to be elastic.

Inelastic Demand and Supply:

In this case a small increase in price will have less than proportionate amount of impact on the demand; that is a small increase in price will bring about a small decrease in demand; it is otherwise called  ‘low price-elasticity of demand’. In this case a price increase in 5% will bring about a fall in quantity demanded by people of less than 5%. If the elasticity is less than one then the curve is said to be inelastic.

When E< 1, this is a case of inelastic demand

Supply and Demand:

It is regarding the effects on price and quantity in a market. It helps to predict and maintain the economic equilibrium of price and quantity by analyzing the functions of price and quantity demanded.

Factors Affecting the Demand Elasticity:

The most important factor which influences the elasticity of goods or supply is the availability of substitutes. If some other substitutes are available in the market, the price increases of the good will encourage the buyers to switch their choices to another product.

Another important factor is the goods that are used regularly and if the price goes up, buyers tend to reduce the quantity consumed.

The third factor is time that is if the price increase is certain it will have an effect on demand. For example, if a pack of cigarettes goes up, and the buyers find it hard to afford then slowly they will come out of the habit of smoking.

Conclusion:

The elasticity varies among the products because some commodities are more essential than the others. The goods and services are considered to be highly elastic and if a slight change is made to the price it leads to sharp change in the quantity demanded.

Sources:

http://ideas.repec.org/a/aea/aecrev/v90y2000i1p282-291.html

Automobile Prices in Market equilibrium, Econometrica 63 (July 1995), S Berry, J Levinson and A. Pakes

Principles of Economics, Arthur O'Sullivan and Steven M. Sheffrin, 1st edition, Prentice Hall, (2002).

http://www.nvcc.edu/home/sdas/elasticity/ 

http://ideas.repec.org/a/aea/aecrev/v90y2000i1p282-291.html

http://www.springer.com/economics/development/book/978-0-387-24292-7

Reflection

I started my English course in writing skills and how to summarize a paragraph.In this course Mr. Hedley helped me and my classmates tosummarize an article and write it in a good way. I learned how to scan a paragraph and use its information to write a summary and choose its best tittle. I’ve learned how to use good vocabulary in my summary and how to organize the information into facts and important sentences. The other thing is I have learned how to use a blog and get benefit from it. I post my blogs and our teacher Mr.Hedley checks our blogs.

In conclusion, I’ve learned how to summarize a paragraph in 30 minutes and how to write a reflection.

 

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