Elasticity and inelasticity of demand and supply is a subject matter of micro economics. If the demanded quantity changes in response to the changes in other variables like taxes or incentives regarding that product, the demand of that product is deemed to be elastic. If there is no changes observed, it becomes inelastic.
Same pattern is applicable with the supply of product. If the supplied product changes in response to the changes in the other variables like prices, taxes and incentives, the product is deemed to be elastic to the supply. Otherwise, in reverse pattern, it is inelastic to the supply.
If the demanded quantity in response to relative changes of other variables either increase or decrease, it is said that the given commodity is elastic to demand.
Or, if the given product remain more or less unchanged despite changes in other variables or factors, the commodity in question called inelastic to demand. For more deeper insight, let’s see some examples of elasticity and inelasticity of demand.
Understanding concept of elasticity and inelasticity of demand
Basically, microeconomics is more concerned about the supply side to allocate as well as use resources more efficient ways. So, it is utmost important to know the change in consumer choices with change in major determining factors in space and time.
In the competitive markets where prices, income, choices, etc. constantly change in time and space, the quantity demanded can’t be even but subject to fluctuations. Whether the demanded quantity changed with change in other variables or still unchanged need to be measured to predict demand pattern.
Elasticity is a measure of changes in quantity demanded when there are changes noticed in the other variables or factors. If the other factor is more effective to impacts the decisions of consumers, it is going to affect the consumption of quantity demanded. But, if the given changes have negligible bearing, the quantity demanded would remain unchanged.
Here, changes can be both–negative or positive. Most importantly, the nature of product or commodity decides whether the respective changes have negative or positive response to quantity demanded.
Examples of elasticity of demand
Suppose, a government has slapped taxes on luxury goods like, jewelry items, cosmetics etc. What would be the response of consumers? Will they go for more or fewer?
Definitely, interested consumers will reduce their consumption of such items for certain period of time. In economic terms, it is an example of price elasticity of demand.
Or, just think that your income has increased by 20 percent compare to previous year. What would be your response to? Surely, you will go for more consumption than earlier. This is an example of income elasticity of demand.
However, there are certain commodities that have lesser degree of Impacts of other variables or factors. These are called inelasticity of demand as they do not affect substantially. Commodities of basic needs like cooking gas, fuels, food items etc.
Elasticity of demand in conclusion,
If we think about the present competitive markets, people have lot of substitutes or better source of income. Discounts coupons, government incentives, have certain degree of Impacts on the quantity demanded by consumers in the wake of rising prices as well.
But, the Impacts of prices and income on the consumption pattern is unavoidable. Therefore, most of the firms are highly keen to look at this idea to predict demand pattern in future.
Explaining inelasticity of demand with examples
Consumer goods, tobacco products, medicines, liquar products are generally catagorized as inelasticity of demand. Usually, quantity demanded of these products can not be changed considerably in response to changes in the other variables or factors.
It is too difficult to reduce the consumption of these products. Yes, the consumption of these products may increase with decrease in prices or increase in income. These are some important examples of elasticity and inelasticity of demand.
Now, let’s see the elasticity and inelasticity of supply with examples.
Elasticity and inelasticity of supply
Law of supply states that whenever prices of commodities rise, the rised prices increase the supply of commodities in the same degree and duration.
Elasticity and inelasticity of supply is a measure of quantity supplied in response to changes in the other variables or factors in the market like prices, income, tax, etc. In this blog, you you learn how elasticity and inelasticity of supply results due to changes in other factors.
Explaining concept of elasticity and inelasticity of demand and supply
In microeconomics, economists are more concerned about the changes in consumer behaviour and supply of commodities in results. They are keen to know the reasons behind that changes which affect supply side in negative or positive ways.
Describing Elasticity of supply
As I stated earlier that elasticity of supply is a measure of quantity supplied in response to the changes in other factors or variables. It means that if the prices of commodities rise, you will witness rise in supply and vice-versa. In another possibility, if the rise in income of consumers noticed, it is going to boosts supply of commodities as well.
Defining Elasticity of demand
Unlike elasticity of demand, in the elasticity of supply, quantity supplied is directly correlated with the positive changes in prices and income. Whereas, in terms of elasticity of demand, only quantity demanded is directly correlated with the rise in income and not prices of commodities.
Understanding elasticity and inelasticity of supply
As per the law of supply, supply is increased with increase in prices of given commodites in the market. Similarly, quantity supplied is directly correlated with the changes in prices of commodities and income of consumers.
If the prices and income rises, quantity supplied will also rise and if both decrease, the quantity supplied also gets affected adversely.
However, there are certain commodities that can’t have any Impacts on quantity supplied despite rise or fall of the other variables or factors.
Concluding remarks on elasticity and inelasticity of demand and supply
Both elasticity or inelasticity of demand depends on the given products, prices, incomes, and government regulations. But, not all the products response in the same degree. Those commodities which are either basic necessities or people are addicted to, are less prone to changes compare to others.
So far, we have learnt that what do elasticity and inelasticity of supply mean and what does happen with changes in other factors or variables. Precisely, supply side is controlled by the firms and they can’t be accidental looser with increased supply when there is decline in the market prices or incomes of people.
This is why extensive empirical research helps firms or producers to predict whether the prices or incomes in coming days rise or fall to plan production. Hence, most of the firms follows bottom-up approach to know it effectively.
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