Report on Principles of Economics: Supply, Demand, and Elasticity

This report delves into the fundamental principles of economics, focusing on the theories of supply and demand within a microeconomic context. It elucidates how market prices and quantities are determined by the interplay of these forces, emphasizing the concept of equilibrium. The report also examines elasticity, a crucial element in neoclassical economics, exploring its different types and its significant role in business decision-making. Specifically, it highlights how elasticity influences an organization's market influence, pricing strategies, and ability to retain customers. Furthermore, the report discusses the determinants of supply and demand, providing a comprehensive understanding of the factors affecting market dynamics. It also outlines the implications of inelastic and elastic products on businesses, concluding that an understanding of these concepts is essential for achieving market equilibrium and making informed business decisions.

Running head: PRINCIPLES OF ECONOMICS
Principles of Economics
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction......................................................................................................................................2
Article analysis................................................................................................................................2
Demand and supplies...................................................................................................................2
Elasticity......................................................................................................................................3
Conclusion.......................................................................................................................................4
References........................................................................................................................................5

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Introduction
This paper analyses the theory of supply and demand. Moreover, it is important to
understand the role of demand and supply in microeconomics (Bas, Mayer and Thoenig 2017).
Market price and quantity depends on the supply and demand. In addition, this paper also
examines the elasticties. The role of elasticity is essential in neoclassical economics. There are
different types of elasticities. There is a significant role of elasticity in businesses. It helps to
determine the influence of the organization in the market.
Article analysis
Demand and supplies
Microeconomics deals with demand and supply. Both of these factors are used in price
determination under microeconomics (Knittel and Pindyck 2016). In a competitive market, when
quantity demanded is equal to the quantity supplied keeping all other factors such as capital and
labor constant, then the economy is said to be in equilibrium. Therefore, the role of supply and
demand is vital in economic equilibrium. To represent the relationship between demand and
supply graphically, quantity is potted on the horizontal axis and price is plotted on the vertical
axis. In addition, supply curve illustrates the relationship between the quantity supplied and
price. On the other hand, demand curve illustrates the relationship between the quantity
demanded and price.
There is an inverse relationship between the price and supply. As the quantity supplied in
the economy increases it decreases the price of the goods and services and vice versa. On the
contrary, there exists a direct relationship between demand and price. In addition, as the quantity
demanded increases it also increases the price of the goods and services. Therefore, the

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equilibrium price and quantity can be determined from the intersection of supply and demand
(Karl et al. 2019). The supply determinants includes production costs such as inputs costs,
capital, materials, labor and energy, number of suppliers and expectation of future prices by the
producers. Furthermore. There are various determinants of demand. The determinants of demand
includes number of potential customers, tastes and preferences, prices of related goods and
services, expectations of the income and future prices by the customers.
Elasticity
When change in one economic variables changes other economic variable, then this
proportional change is denoted by the elasticity. There are mainly two types of variable such as
elastic and inelastic variable (Levacic 2015). When changes in one variable bring larger
proportional change in other variable, it is known as elastic variables. On the other hand, when
changes in one variable brings smaller proportional changes in other variable, it is known as
inelastic variables. Basically, the ratio between percentage changes in one variable with
percentage change in other variable is denoted by the elasticity. In addition, there are several
type elasticities such as price elasticity of supply, income elasticity of demand, price elasticity of
demand, elasticity of interpersonal substitution and elasticity of substitution between factors of
production. One of the essential aspect of the neoclassical theory is elasticity.
There exists a wide range of factors, which affects demand elasticities. The demand
elasticites can be affected by the factors such as availability of substitutes, time and necessity. In
business, price elasticity plays a pivotal role. It is important to understand the nature of the goods
and services produced in a business. Therefore, the success of the business largely depends on
the type of elasticity of goods and services. On one hand, the organizations that deals with
inelastic products enjoys the privilege to set higher market prices. On the other hand, the

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organizations that deals with elastic products have to retain a high volume of sales transactions
and compete with other organizations on price (Bumas 2015). Hence, the capacity to retain
customers by the organizations also depends on the elasticity of products. As a result, it affects
the overall performance of the organizations. The products those are inelastic in nature keep on
attracting customer even in case of hike in price. Therefore, the organization tries to produce and
deals with products those are inelastic in nature.
Conclusion
The market equilibrium can be achieved from the point where market demand is equals to
the market supply, while keeping all other factors constant. Therefore, equilibrium price and
quantity can be determined with the help of demand and supply (Chirinko and Mallick 2017).
Elasticities also an important aspect of the economics. The determination of market price can be
done with the help of elasticity in business. Businesses those are deals with inelastic products
have the power to influence the market price. On the other hand, businesses those are deals with
elastic products cannot influence the market with price.

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References
Bas, M., Mayer, T. and Thoenig, M., 2017. From micro to macro: Demand, supply, and
heterogeneity in the trade elasticity. Journal of International Economics, 108, pp.1-19.
Bumas, L.O., 2015. Intermediate Microeconomics: Neoclassical and Factually-oriented Models:
Neoclassical and Factually-oriented Models. Routledge.
Chirinko, R.S. and Mallick, D., 2017. The substitution elasticity, factor shares, and the low-
frequency panel model. American Economic Journal: Macroeconomics, 9(4), pp.225-53.
Karl, E., Case, F., Oster, R. and Sharon, E., 2019. PRINCIPLES OF MICROECONOMICS.
Pearson.
Knittel, C.R. and Pindyck, R.S., 2016. The simple economics of commodity price
speculation. American Economic Journal: Macroeconomics, 8(2), pp.85-110.
Levacic, R., 2015. Macroeconomics: an introduction to keynesian-neoclassical controversies.
Macmillan International Higher Education.