Impact of Elasticity of Demand and Supply on Individuals

Microeconomics

MICROECONOMICS: 1
Contents
Introduction...........................................................................................................................................2
Elasticity of demand and supply............................................................................................................2
Conclusion.............................................................................................................................................6
References.............................................................................................................................................7

MICROECONOMICS: 2
Introduction
The report brings out the discussion on the impact of concept of elasticity of demand and
supply on individuals. Demand refers to the customers “need” or “desire” of a given product
or the type of the product and their willingness to purchase the product. The report highlights
that how all the concepts related to the elasticity of demand and supply is related to individual
preferences. The concepts acknowledged were study of price elasticity, income elasticity, and
the cross elasticity. The cross elasticity covers the study and impact of substitute goods and
complementary goods on the buying behaviour of individual customers. Moreover, the
elasticity has different degrees according to the responsiveness of one variable in response to
another variable (Pagoulatos, and Sorensen, 2017).
Elasticity of demand and supply
Elasticity refers to the change in price, which may or may not affect the supply and demand
of goods and services. The concept of elasticity actually measures the responsiveness of
quantity demanded of a product to the change in price. The same concept goes with supply
also where the responsiveness of the quantity supplied is of a product to the change in price is
measured. The degree of responsiveness is classified into various ranges from elastic demand
to inelastic demand and unitary demand (Hursh, and Roma, 2016). The elasticity of demand
shows the extent to which prices changes and the other factor causes fluctuation in the
quantity demanded. The concept of demand elasticity is classified as price elasticity of
demand, income elasticity of demand and the cross elasticity of demand (Davis, Geisler, and
Nichols, 2016).
Price elasticity is used to determine the change that have occurred in the price of the product
or the commodity. The formula is given below-
Ep = %change in quantity demanded/%change in price