Micro Economic

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).

The definition of an oligopoly is the market condition in which the production of identical or similar products is done by a small number of big firms. Oligopolies can be categorized in to two types: homogenous oligopolies where the product is exactly the same (e.g.: steel production)

Elasticity of demand is the relationship between the demands for a product with respect to its price. Generally, when the demand for a product is high, the price of the product decreases. When demand decreases, prices tend to climb. Products that exhibit the characteristics of elasticity of demand are usually cars, appliances and other luxury items. Items such as clothing, medicine and food are considered to be necessities. Essential items usually possess inelasticity of demand. When this occurs prices do not change significantly.

G. Identify by price range the areas on the demand curve where demand is elastic, inelastic, and unit elastic using the attached “Graphs for Elasticity of Demand, Total Revenue.”

4) Use an example to discuss why demand tends to be relatively elastic in a situation where “Availability of Substitutes” exists.

Elasticity of demand is a measure of responsiveness to a price change of a good or service. When demand is elastic, the percentage of a price change of a product will result in a larger percentage of quantity demanded (McConnell, p 77). It basically means reducing the price of a good service will result in a greater quantity demanded and an increase in revenue for the seller. When demand is inelastic, a change in price will result in a reduction of quantity demanded, which will then lead to a revenue decrease (McConnell, p 77). To demonstrate elastic and inelastic demand results, Company A sells 100 pens at $1.00 a piece each day, making their revenue $100.00. Company A

An Oligopoly refers to a market structure where-by the suppliers have formed some form of cartel and are acting in unison. In such a case the suppliers have the power to determine the price of the commodity and may set any price.

Discussion 1: Elasticity. Analyze the determinants of the price elasticity of demand and determine if each of the

* Analyze the determinants of the price elasticity of demand and determine if each of the following products  are elastic or inelastic:

If a good in itself is available and on the pricey side the consumer in today’s society will look for a substitute that complements the budget, therefore creating a competitive market. A competitive market begins when the substitute for the good is marketed at a lower price and the sale of this product begins to increase. When the supply and demand for the substitutions become larger the manufacturer will adjust the costs of the original good to increase sales of the product. If the consumer notices that there was a particular reduction of the good or it can be purchased in a larger quantity of a more reasonable price, then the consumer will change back to the original product at hand. Therefore lending a hand in creating today’s society of price elasticity.

1. For each of the following pair of goods, which good would you expect to have more elastic demand and why?

The concept of elasticity considers the responsiveness of supply or demand in relation to changes in price of

When price elasticity of demand is elastic, the coefficient will be greater than one. When a percent price change occurs quantity demanded responds strongly there will be a large change in quantities consumers purchase. There is price sensitive in this scenario. If price elasticity of demanded is inelastic the coefficient will be less than one. When a percent price change occurs quantity demanded does not respond strongly then there is a slight change in quantities consumers will purchase. There a weak price sensitive in this scenario. Lastly, if price elasticity of demanded is unit elastic the coefficient will be equal to one. Whenever there is a percent change in price there is an equally matched percent change in quantity demanded. This scenario is rare.

Markets do not have control of how their products are sold to consumers who strive to purchase merchandise. Every market has its own particular regulations relating to how buyers purchase items and how sellers sell them. This concept aids businesses in regulating how they function and how they must operate in future. I will provide an adequate amount of information concerning perfect competition, monopolistic competition, oligopoly, and monopoly. I will also discuss how each term is important to consumers and how it affects the market.

Recall that the elasticity of demand, which measures the responsiveness of demand to price, is given by