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Inelasticity and elasticity of demand refer to the degree to which demand responds to a change in another economic factor, such as price, income level, or substitute availability. Elasticity measures how demand shifts when other economic factors change. When fluctuating demand is unrelated to an economic factor, it is called inelasticity.
Price is the most common economic factor used when determining elasticity or inelasticity. Other factors include income level and substitute availability.
Elastic demand means there is a substantial change in quantity demanded when another economic factor changes (typically the price of the good or service), whereas inelastic demand means that there is only a slight (or no change) in quantity demanded of the good or service when another economic factor is changed.
The elasticity of demand is an important economic concept. This article will explore more about the concepts of elasticity and demand, and the difference between demand that is elastic and demand that is considered inelastic.
The price elasticity of supply is the measure of the responsiveness in quantity supplied to a change in price for a specific good.
In economics, elasticity is a summary measure of how the supply or demand of a particular good is influenced by changes in price. Elasticity is defined as a proportionate change in one variable over the proportionate change in another variable:
[latex]Elasticity \;= \; \frac{\%\; Change\; in\; quantity}{\%\; Change\; in\; price}[/latex]
The price elasticity of supply (PES) is the measure of the responsiveness in quantity supplied (QS) to a change in price for a specific good (% Change QS / % Change in Price). There are numerous factors that directly impact the elasticity of supply for a good including stock, time period, availability of substitutes, and spare capacity. The state of these factors for a particular good will determine if the price elasticity of supply is elastic or inelastic in regards to a change in price.
The price elasticity of supply has a range of values:
Inelastic goods are often described as necessities. A shift in price does not drastically impact consumer demand or the overall supply of the good because it is not something people are able or willing to go without. Examples of inelastic goods would be water, gasoline, housing, and food.
Elastic goods are usually viewed as luxury items. An increase in price for an elastic good has a noticeable impact on consumption. The good is viewed as something that individuals are willing to sacrifice in order to save money. An example of an elastic good is movie tickets, which are viewed as entertainment and not a necessity.
The price elasticity of supply is determined by:
The result of calculating the elasticity of the supply and demand of a product according to price changes illustrates consumer preferences and needs. The elasticity of a good will be labelled as perfectly elastic, relatively elastic, unit elastic, relatively inelastic, or perfectly inelastic.
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The price elasticity of supply is the measure of the responsiveness of the quantity supplied of a particular good to a change in price.
The price elasticity of supply (PES) is the measure of the responsiveness of the quantity supplied of a particular good to a change in price (PES = % Change in QS / % Change in Price). The intent of determining the price elasticity of supply is to show how a change in price impacts the amount of a good that is supplied to consumers. The price elasticity of supply is directly related to consumer demand.
The elasticity of a good provides a measure of how sensitive one variable is to changes in another variable. In this case, the price elasticity of supply determines how sensitive the quantity supplied is to the price of the good.
When calculating the price elasticity of supply, economists determine whether the quantity supplied of a good is elastic or inelastic. The percentage of change in supply is divided by the percentage of change in price. The results are analyzed using the following range of values:
There are numerous factors that impact the price elasticity of supply including the number of producers, spare capacity, ease of switching, ease of storage, length of production period, time period of training, factor mobility, and how costs react.
The price elasticity of supply is calculated and can be graphed on a demand curve to illustrate the relationship between the supply and price of the good.
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