Demand and Supply (Research Paper Sample)

Demand and Supply
Name
Course
Institution
A discussion of price elasticity in demand based on elastic, unit, and inelastic demand
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 elasticityof demand becomes when demand is greater than one, that is, an increment in price (1%) shall force a decrement in quantity demanded (1%).Inelastic demand prevails when an increment by 1% in the unit’s prices causes a shift of less than 1% in the quantity’s demand (p>1% - A discussion on cross price elasticity relative to substitute and complementary goods
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 goodson 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).
A discussion on income elasticity relativeto inferior and to normal goods
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.
An example, revealing the facts as to why demand turns into a point of elasticity with the availability of substitutes
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 leads to a shift towards the demand for tea (Benassy, 2008). Higher branding, therefore, results ina relatively inelastic demand (Anderson, 2006). This is because consumers’ perception is on favourite brand, even if the substitutes have low prices they will depend on the superior product, instead. Therefore, decrease or increase in the price of a low brand commodity will result in minimal changes to its demand.
A discussion showingproportionalincomedevoted to goods by asserting a contrast of two purchases.
Economically, per capita affects the capacity of individuals in budgeting. %Δ in demand ÷%Δ in incomeaffects the marginal consumption. A marginal shift towards increment in income by 10 units imposes an outward shift in necessities’ demand curve from point 0. For example, the factual is that the demand for housing is acquainted 5% of the revenue, it will shift to +0.5 units in the demand curve. Elasticity increases as the proportion of income devoted to a product increases.
For instance, American spend an average of 30% of their total income on housing, therefore, customers are very sensitive towards change in housing prices. Since housing is an essential commodity, when there is increase in housing price, people will look for other alternatives such as condos .A good example of proportion of income devoted to a good concept is clothing and bread, which are products purchased each month (Benassy, 2008). Since bread is an essential commodity, the proportion of income devoted to it decreases following an increase in income, while that of luxury clothing increases following an increase in income. Therefore, non essential goods have high elastic demand.
1.  An own discussion asserting the effects of percentage changes and variations between prices and quantities of specific goods
The demand of necessities for example, houses increases in accordance to the income levels, that of inferior goods for example, second appliances decreases with increased incomes and increases with decreased incomes. For luxuries, elasticity increases as the proportion of income devoted to a product increases by >+1. For instance, a 10% increase in income shall affect the demand of jewels by 14%.
Contrast a person’s response to a large increment in a product’s price in the short run and in the long run
As time goes on, elasticity increases.A sudden increase gasoline pricesimposes inelastic demand since people cannot desist from its consumption (Anderson, 2006). In the short term, people’s needs do not change. However, consumers will look for alternative solutions such as using public means or sharing cars in the end (Benassy, 2008). Although customers use cars on their daily chores, they use less gas.
Identification by price range, the areas on the elastic, inelastic, and unitary elastic patterns of the demand curve
The vertical axis establishes the price ranges. Elasticity prevails when a shift in unit prices from P80-P60 leads to a shift in quantity from...