Demand, Supply, Market Equilibrium and Elasticity

The relevance of demand and supply in economics cannot be overstated given that the two are considered some of economics' most fundamental concepts. In this text, I explain both the demand and supply for Anheuser-Busch's products. Further, I identify some of the substitute and/or complementary goods for Anheuser-Busch's products.

            One reason that could have led the ice cream sale to fluctuate could have been due to Price of Related goods. For example, frozen yogurt is a substitute for ice cream, so when the price increases, more ice cream is demanded. However, hot fudge is a compliment for ice cream, therefore when its price goes up, less ice cream is demanded. Second reason leading for the ice cream sale to fluctuate could be due to income. For normal goods, the higher your income, the more you buy. For inferior goods, the higher your income, the less you buy. Taste is another factor. When taste changes, the quantity demands change.  For example, our taste for ice cream might depend on the weather. Expectations are also an important factor.  Expectations about future income or prices affect the quantity demanded today.

Income elasticity of demand is used to measure how consumers respond to changes to their income and their buying power or demand of a product. To better understand how changes of income affect consumers decisions to either buy less of a specific product or more of a specific product we use the income elasticity formula. The income elasticity formula is to divide the percentage change of the quantity of a particular product demanded over the percentage of change in a person’s income. The answer will result in either a positive or negative coefficient with a threshold of zero. If the results are a positive coefficient then that specific product is considered a normal/superior good; if the results are a negative coefficient that product is considered an inferior good.

Consumers can adjust to price changes by purchasing less of an item whose price has risen and more of a cheaper substitute.

Price elasticity of demand enables business organizations to predict how their total revenue will be effected in the event they change the prices of their products. When a given good has inelastic price elasticity of demand i.e. Ed 1, then the percentage change in the quantity demanded is greater that the change in price. Thus, raising the prices of such commodities results to decline in the total revenue because the business may loss customers to their competitors. Nonetheless, reducing the prices of goods with elastic elasticity of demand increases the total

In January 2008, gasoline prices were $3 a gallon with an increase of 33 percent price of gasoline was $4 a gallon in June 2008. Between the January and June 2008 time period the quantity of gasoline purchased decreased by 3 percent. After gathering the required information, the second step is to calculate the price elasticity of demand (PEoD) for gasoline is to calculate the percentage change in price which is done by using the following formula. [Price New-Price Old] / Price Old. The numbers plugged into the equation is [4-3] / 3=.3333 or 33 percent. The percentage change in price equals 33 percent. The third step is to calculate the percentage change in quantity demanded. This is done by using the following equation [Demand New-Demand Old] / Demand Old. The information provided above states that the percent change in quantity demand is 3 percent, which means that there is not a need to calculate the percent change in quantity demand. The final step of calculating the price elasticity of demand is done by completing the following formula of PEoD = (% Change in Quantity Demanded) / (% Change in Price). When the numbers are plugged into the equation it is 3% / 33% =.0909 or 9 percent. The price elasticity of demand for gasoline is 9 percent.

With the growing cultural diversity in the San Francisco bay area, it is hard not to notice the Asian cuisines and restaurants in every corner of the block. Asian food had become a natural substitution choice for the American fast food; and rice, is the perfect substitution for wheat and flour. Rice is the seed of the monocot plant “Oryza sativa”. As a cereal grain, it is the most important staple food for a large part of the world 's human population, especially in East and South Asia, the Middle East, Latin America, and the West Indies. It is the grain with the second-highest worldwide production after corn. In this

According to the graphs provided above, with prices ranging from $10-$4 during certain periods and the company making price adjustments, the price elasticity remained most valuable at $7. At this point, the company realizes that $7 is where they are making most of their profit and that is the reason Domino 's Pizza would leave their product on the market at this price for a longer time. It takes time in order for consumers to adjust to a specific product at a new price. The longer Domino 's Pizza has their product on the market at this price, the greater the demand. This demand will help increase the company 's revenue. At this time Domino 's Pizza would test one of his other products to see if that product has as much of a demand as pizza at its selling price. The concept of time is looking to see if the demand of the company 's product rises over a certain period. Throughout this time, the company can introduce another product similar to pizza and determine if consumers are willing to have the same demand for this product.

Since firms facing an elastic demand can increase total revenue when they cut prices, the opposite condition exists when they try to raise prices. With many substitutes in consumption available, a price increase leads to a significant decline in consumption - the percentage change in quantity demanded exceeds the percentage change in price. Producers that raise prices when facing an elastic demand will find that total revenues decrease as the gain from charging higher prices is more than offset by a desertion of consumers to cheaper substitutes, with sales and output falling. When price

Every day people use products without thinking about the significance of that particular product. Many people do not realize how important these products are and how much one product that is used every day affects the economic status of not only the country but the world. Wheat is used to make a large number of products which include beer and bread. The next few pages of this report will discuss how supply and demand for wheat shifts, how it affects price, and whether or not wheat is a luxury or a necessity will also be analyzed.

Income elasticity of demand (YED) shows the effect of a change in income on quantity demanded based on the consumers income, and YED shows precisely the extent to which changes in income lead to

c.   Compare the elasticities in parts a and b. Are they equal? Should they be equal?

that demand does not respond to the change of the price of a good. The

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

Income effect is when the income changes and it results in the change of the quantity demanded. In this situation we observe a rise in disposable income that will consequently increase the purchasing power of the households that means individuals can purchase more than before. This means that an increase in income results in increase of the demand if the good is a normal good like food & beverages. Normal good is a good for which the demand is increasing when the consumer’s income is rising and vice versa. Moreover, a change in income prompts the consumer to choose a new optimal bundle. The income effect of a rise in price can be negative or positive, depending on whether the good X is. Policy 1 does not have any substitution effect, it is a pure income effect. Graphs are illustrated in Appendix A17 Figures 4,5,6. The x1 and x2 values for policy 1 in comparison with no policy are nearly same that distinctly proves the fact that the net effectiveness of this policy is 0.