Concepts of Supply and the Elasticity of Demand Essay

Concepts of Supply and the Elasticity of Demand - Essay Example Due to the fact that the market for many goods and services has a very inelastic price elasticity of demand, the actual level of demand that consumers express bears little relation to the price that is being offered for the commodity.   This particular graph is indicative of an elastic demand curve. It is important to bear in mind that the demand curve is not steeply sloping; rather, it exhibits a gradual decline as the price fluctuates. Naturally, determinants such as consumer time horizon will greatly impact the total elasticity that is represented in the above representation by elongating and flattening the demand curve as a result of the fact that the consumer believes that the cost is likely to change within the near future. Similar changes to the demand curve will also be noted if/when changes to the consumer’s income are noted and/or if the availability of substitutes weakens or strengthens the demand that has hitherto been illustrated.   Similarly, â€Å"cross-price elasticity† is a term that is used to measure the responsiveness of the demand for a given good to the change in the price of a competing good. This level of change is given as a percentage point and is derived as a function of measuring the percentage change in the price of the secondary good/commodity. As a quick example, if the price of shipping were to increase by 10% and the price of the finished good itself were to decrease by 25%, the following formula would be used to calculate the cross-price elasticity of the given good: -25/10= -2.5. In this way, the reader can see the level to which competing goods/commodities play with relation to the elasticity of demand for a given product within the marketplace.