Elasticity of Demand and Supply

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Elasticity is the reaction of demand or supply due to some changes. Demand elasticity is the change in demand which happens in a result of a change in other variables. It helps the organisation to calculate the change in demand in case other variables change. There are three factors that can affect demand. Price elasticity of demand: Price elasticity of demand (PED) is the change in demand according to a change in price. There are some factors affect PED, these factors are the following: Substitutes: the number of substitutes in the market can affect PED, if it is easy for the customer to change the product demand will decrease. This is described as an elastic demand as it is easy to rely on another product. For example cars, if a car manufacturer decided to increase the price, consumers will decide to choose another product which gives the same service with the same specifications. Time: it takes time for consumers to respond to the change in price. In the short run, people will still buy the product which can be described as inelastic demand. While in the long run people will start looking for a substitute so demand will decrease. Market structure: it also depends on the market structure as if it is monopoly market consumers will not have a choice to change the supplier (inelastic demand). While in perfect competition, consumers have the advantage of changing the supplier (elastic demand) Price elasticity of demand can be calculated using the following formula.
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