Business and Management
Submitted By brianc10982
Supply and Demand
Brian C. Leighliter
Western Governor’s University
Supply and Demand A. Discuss elasticity of demand as it pertains to elastic, unit, and inelastic demand.
It refers to variations in the quantities of commodities consumed in relation to the price of the commodity. Elastic demand for a commodity means a variation in commodity prices causes a large change in the quantity consumed. Elastic demand means that an increase in the price of a commodity causes a more than proportionate reduction in the quantity consumed. Unit elasticity means that an increase in price causes a proportionate reduction in the quantities of the commodity consumed. Inelastic demand, on the other hand, means that an increase in the prices of a commodity causes a less than proportionate reduction in the quantity consumed (McEachern, 2013). B. Discuss cross price elasticity as it pertains to substitute goods and complementary goods.
Cross price, elasticity of demand refers to a change in quantity demanded for a commodity resulting from movements in the value of a related one. It is either positive or negative because of the relationship between the two commodities. For commodities that are substitutes, an increase in prices of one commodity causes consumers to prefer the other one. Cross elasticity of demand in this case for the two commodities is positive because the increase in price of one commodity causes a rise in demand of the other. For commodities that are complementary, the cross elasticity of demand is negative. The relationship arises from the fact that a rise in the price of one commodity causes reduction in demand of the other one (McEachern, 2013). C. Discuss income elasticity as it pertains to inferior goods and to normal goods (sometimes also called superior goods).
Income elasticity of demand refers to a change in the demand of a commodity…...