Inelastic Supply Curve

The majority of the products that Tesco sells are elastic goods, such as electrical goods. Elastic goods demand changes depending on the price. However Tesco does sell inelastic products, which are necessities such as milk as customers still need to buy these. Inelastic means that the demand for the product does not change, even if there is a change in price.

The second form of competition and final aspect of market conduct in an oligopoly is price competitive and is more applicable to supermarkets because unlike computer or car manufactures they usually have a very similar range of products to offer, and therefore depend on lower prices to outcompete the other firms. However this can often lead to a kinked demand curve a curve where there is two points at which the firms demand curve is elastic and at another point inelastic. The elastic section of a kinked demand curve occurs when a firm increases its prices and in response the competitors keep their prices as they are at a lower price. The inelastic portion is derived when a firm reduces its prices and competitors meet these prices causing an inelastic

Also, economist use inelasticity to determine how the demands for health care services. Most medical care is relatively inelastic. Pain, critical needs, fear of uncertainty, and insurance tend to reduce the role of price in patient decision making. Most hospital face inelastic demand, especially for emergency services, yet they charge less than profit-maximizing prices

The elasticity of demand measures the buyer’s reaction to price as its changing. “Economists measure the degree to which demand is price elastic or inelastic with the coefficient E d, defined as E d = percentage change in quantity demanded of product X/ percentage change in price of product X” (McConnell, C. 2011). Therefore, Ed=∆Qd/∆Pd. When elasticity of demand is measured less than one, demand is considered to be inelastic. The coefficient in an inelastic range is less than one. When this takes place the percentage change in price is more than the percentage change in quantity. It can be said that when inelastic demand is present that quantity becomes less effected by price changing.

Inelastic means inflexible, and it means there are no substitutes for that product. An inelastic product would be gasoline, because there is only one kind of gasoline.

There is absolutely no doubt that we are facing a serious economic downturn that is threatening the existence of many businesses here in the United States as well as abroad. Many companies much like Home Depot are formulating ideas on how to deal with price elasticity of demand or the lack there of (inelasticity). Price elasticity of demand refers to the measure of consumer response to the quantity of demand for products or services to price adjustments. The formula for price elasticity of demand is: (% change in quantity demanded)/ (% change in price), the latter is inelasticity in which is some the issues Home Depot is facing today. The supply and demand graph (See figure 4) indicates the price elasticity of demand for Home Depot: This is an example of a positive price elasticity of demand curve. Should the blue "S" supply line curve slightly to the right that would represent an inelastic supply and demand. The price elasticity graph (economagic.com) illustrates the predicament of many businesses today (University of Aberdeen, 2009).

When there is a large increase in the price of a product in the short run it results in inelastic demand because there is little time to adjust to the increase and find an alternative product. Let’s say the consumer uses the local bus service to go to work. On the way to work one day he notices that the prices of transportation will double beginning tomorrow. In the short time he may be forced to continue paying the higher prices until he can find alternative transportation. As time passes, the consumer can make alternative choices such as carpooling, working from home, or riding a bike to work; therefore, the cost increase for the transportation would be elastic.

The Law of Demand states that as the price increases, then the demand will decrease, and vice versa. In the article, the demand for turkeys increases during Thanksgiving, while the price drops. The change in demand is due to the increase in preferences for turkeys. During the holiday season, people prefer to eat turkey at the dinner table with family, so the demand for turkeys will increase. The Law of Supply states that as the quantity supplied increases, the price should increase, and vice versa. This is opposite in respect to turkeys as the quantity supplied increases as the price decreases. This is because the supplier’s want to attract the customers to buy their product and not their competitors. Inelastic supply is when the quantity supplied remains constant as price changes. This relates to the roses and fresh turkey, as there is a limited supply of these products, so the price will change but the supply will stay

For example, the tax incidences will change based on both the elasticity of demand and supply. The consumer has to

This causes the price and the quantity move in opposite directions in a supply curve shift. Also, if the quantity supplied decreases at any given price the opposite will happen.

When there is a change of one of the factors of supply- like changes in the prices of production inputs like labour or capital; a change in production technology and its associated productivity change; or the amount of competition in a specific product market- there is a corresponding change in the supply curve. For example, if worker productivity improves due to some human capital or technology investment, then the costs of production decrease. This exerts a positive effect on the supply curve shifting it right, where the new market equilibrium is at a higher quantity and a lower price, holding everything else constant. There can also be a negative shift that moves the supply curve to the left, with the resulting market clearing price being higher and quantity lower, ceteris

9. If the demand for a good is perfectly price inelastic in the short run and the supply curve is upward sloping, imposing a sales tax on the good will

When the elasticity of demand is elastic, the change in quantity will be greater that the change in price. Hence, the total revenue will reduce with increasing prices and increase as prices decrease. However, if the business offers goods or services with inelastic price elasticity of demand, then the change in quantity demanded will be smaller than the change in price. Consequently, the total revenue, which is a product of the two will increase when

Different factors such as a rise in raw material cost, rise in the wages, and marketing costs can make the MC curve shift upwards from MC0 to MC1. But as long as the MC curve keeps within the interval defined by points A and B, the price, demand and quantity produced will remain unchanged as MC will still be equal to MR. Prices are pretty sticky in the automobile market. If BMW decides to raise its price above P, its competitors will keep their prices unchanged. As a result, some consumers will switch to cheaper substitute goods and demand for BMW will fall proportionately more than the increase in price, so we can conclude that for any price above P, demand is relatively elastic. On the other hand, if BMW decides to lower its price below P, then its competitors will follow and cut their prices too. As a result, even a big decrease in price will only lead to a small increase in demand, so we conclude that for any price below P, demand will be relatively inelastic. Since BMW and its competitors don’t want to lose out on market share, nor on profits, they will all produce at the profit maximising price P.

If the demand for companies output is inelastic then the change in price will have a smaller effect on change of quantity. Let’s say company will cut the price for 10 percent. This will cause the increase in demands for 5