Elasticity: Supply and Demand and Price

1652 WordsDec 23, 20137 Pages
Price elasticity is an important concept to understand when beginning and maintaining a business that distributes goods or services. Elasticity is the economic concept that estimates when products should be introduced to consumers, and how (provided that all other variables remain constant) demand or supply will be affected by changes in the environment that affect price (Basic Economics, 2007-2010). Depending on how the percentage demanded/supplied is affected by price differentiation will determine whether or not a good or service is considerably elastic or inelastic, providing a sound guideline for business owners. The higher the elasticity, the more the demand will change if the price varies in the competitive market. Elasticity…show more content…
If a price of a book increases by 10% and the quantity supplied increases by 20%, this means that the price elasticity would be 2, meaning that price has little bearing on quantity supplied. Out of these three products and services, the hotel room would be the least elastic, and the book would be the most elastic. There are a number of factors that can impact the elasticity of a product. How necessary an item is, how large or small the expenditure is, how long the product has been out and the numbers of substitutes on the market are all components that will effect on how much demand will change. A bridge toll will be inelastic, meaning the number of people wanting it will not change, because it may be a necessity expense for travel, there may be few alternative routes, and it may be just a few cents for each consumer (Basic Economics, 2007-2010). College tuitions are more inelastic. Our society has deemed it necessary to have a degree. Regardless if tuition increases, the demand will stay relatively the same. There are few alternatives to having a college degree and therefore the market is more limited. Price fluctuation will not impact consumer demand extensively, therefore it would be considered inelastic. A bridge toll can be considered inelastic
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