An analysis of the economic concepts of demand supply and elasticity

demand and supply analysis of pepsi

In Figure 4. For example, setting a price above market equilibrium will result in a reduction in quantity demanded and an increase in quantity supplied.

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Other factors that can influence the market supply of a given product or service include technological advancements and changes in pricing for things such as inventory, raw materials and labor.

When pricing changes result in a difference between the quantity supplied and the quantity demanded, a surplus or shortage can exist. Key Concepts and Summary Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price.

The value of our elasticity will indicate how responsive a good is to a change in income. Any change in non-price factors would cause a shift in the supply curve, whereas changes in the price of the commodity can be traced along a fixed supply curve.

However, there are multiple other factors that affect markets on both a microeconomic and a macroeconomic level. Inelastic Table 1. These can be calculated with the following formulas: Own-Price Elasticity of Supply.

That tendency is known as the market mechanism, and the resulting balance between supply and demand is called a market equilibrium.

Elasticity of demand and supply

Our equation is as follows: Consider our discussion of complements and substitutes in Topic 3. Figure 2. On the other hand, when prices are higher, producers are encouraged to increase their levels of activity to reap more benefit. Income elasticity of demand eND In Topic 3 we also explained how goods can be normal or inferior depending on how a consumer responds to a change in income. The value of our elasticity will indicate how responsive a good is to a change in income. The sum of all the demand curves for a specific good or service is referred to as the market demand curve. Any change in non-price factors would cause a shift in the supply curve, whereas changes in the price of the commodity can be traced along a fixed supply curve. It is a common mistake to confuse the slope of either the supply or demand curve with its elasticity. Market Equilibrium The demand and supply curve intersect and form the market equilibrium. Elastic, Inelastic, and Unitary: Three Cases of Elasticity Before we get into the nitty gritty of elasticity, enjoy this article on elasticity and ticket prices at the Super Bowl. This article was most recently revised and updated by Adam Augustyn , Managing Editor.

Calculating the Price Elasticity of Demand. The price elasticity of supply is calculated as the percentage change in quantity divided by the percentage change in price. The same applies when the price goes down. Supply and demand heavily guide market behaviorbut do not outright determine it.

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