Factors That Affect Supply And Demand Of A Product

Elasticity of demand is gauged by the percentage of change in demand when the price of an item varies. If the change in the quantity demanded is greater than 1 the demand is elastic.

Price elasticity that relates to demand is determined by many factors. Price elasticity is measured by the change in price and the response from consumer demand. The demand of a good or service will vary the price in the item. The most important factor to determine the price elasticity of demand is necessity. If a good is a necessity, the demand will seldom change and the price is able to be adjusted. The demand is the most important due to the freedom it provides for price adjustment and inventory control. With necessity comes an inelastic price. Other factors such as the

Elastic demand or “elasticity means the extent to which the quantity demanded changes when there’s a change in the price of a good” (Thinkwell, 2013). A product is considered elastic when the change in price increases the percentage change in quantity demanded. When

A. The concept of elasticity of demand has played a major role in managerial decision-making. It has greatly helped managers in consideration of whether lowering a price will lead to an increase in demand of a certain product, and if so, to what extent and whether profits would increase as a result of doing so. In this case the concept of demand becomes advantageous in that:

Price elasticity of demand refers to the difference in demand as related to price. According to Douglas (2012), “Price elasticity of demand is defined as the percentage change in quantity demanded divided by

Elasticity means flexible, and means there are substitute for that product. An elastic product would be Diet coke, when the price of Diet coke goes up, others would drink other kind of sodas, such as Diet Pepsi.

Price elasticity of demand is a Theory of the relationship between a change in the quantity demanded of a

Price elasticity of demand measures the responsiveness of demand after a change in a product's own price. () healthcare insurance is in a high demand, ever since, President Obama’s pass the Affordable Care Act. Meanwhile, the price of healthcare insurance has increase in quantity with high response to changes in price. President Obama’s healthcare (Affordable Care Act) was design to accommodate every citizens with some form of healthcare

Elasticity is a measure of the responsiveness of demand to changes in the price of a good or service. In the case of Steam Scot, when the price rises from 4 to 5, demand falls from 60,000 to 40,000 units. The original equilibrium market price of 4 pounds resulted in demand of 60,000 units and this generated revenue of 240,000 pounds. When the prices increased to 5 pounds the resulting demand is 40,000 units, and this generates total revenue of 200,000 pounds. When market price changes from 4 pounds to 5 pounds 40,000 pounds of revenue are lost in this indicates an elastic price elasticity of demand.

Based on the above description, forms of elasticity will affect business decisions and pricing strategies differently depending on the nature and type of products or services being offered. Business organizations whose product offerings have elastic and perfectly elastic price elasticities of demand should not attempt to raise prices of their products because it will cause the quantity demanded and consequently total revenues to drop drastically. Businesses can there use the price elasticities of demand to determine whether the proposed changes in their prices will raise or reduce their total revenue. The following expression may be useful in helping business organizations to determine the impacts of elasticities on their total revenues based on the suggested price changes.

The importance of price elasticity and total revenue are related. The owner can use the total revenue test that can determine whether demand is elastic or inelastic. The test compares the change in total revenue corresponding to the changing price. The total revenue test can assist a company to maximize revenue. If a good is elastic, the owner will not want to change prices because even a small change would decrease demand and vice-versa. By using the total revenue test the owner can avoid pricing mistakes that may be costly. Along the demand curve it can be seen that raising the price reduces the quantity demand, point A.

There are three kinds of elasticity. There is elastic demand, where the elasticity is over 1. There is unitary elastic, where it is at 1.0. There is inelastic demand, where the elasticity is under 1 (Investopedia, 2013).

Elasticity of demand is measured as the percentage change in quantity demand divided by the percentage change in price .

Note: Normally few substitutes = Inelastic and many substitutes = Elastic. Also, greater than the absolute value of 1 = Elastic (quantity supplied or demanded has a significant response to a change in price). Less than the absolute value of 1 = Inelastic (quantity supplied or demanded minimally reacts to price changes). Lastly, equal to the absolute value of 1 = unit elastic (econPort, n.d.).

If the demand for the good or services of the company is elastic then the change in quantity demanded would be greater than a change in price. Let’s say the 10 percent decrease in price will cause increase in demand for 20 percent. The effect of this changes is that customers buying more products of this company. They are buying it for lower price but the price decrease outweigh by increasing quantity of the products or services. In this case the company benefits from these changes by raising profits. On the other hand, if company would raise the prices for the product the quantity will decrease so does the profit.