Econ Ch 5 Blog

Elasticity and its application

Chapter five highlights what the price of elasticity of demands is.  demand for a good is said to be elastic if the quantity demanded responds SUBSTANTIALLY to the change in price. Demand for a good is said to be inelastic if the quantity  demanded responds only SLIGHTLY to the change in price. In other words, this is how economists analyze a buyers willingness to purchase or avoid a product. There are many factors that determine the price elasticity of demand such as the availability of substitutes which makes it easier to switch one good for another. This means that if one product has a higher price then the buyers are more likely to buy a similar(substitute) product for a lower price. Another factor is Necessities and Luxuries. Necessities have inelastic demands means that the demand changes only slightly and luxuries have inelastic demands due the the fact that if money is short, the luxury will be avoided. The TYPES of markets are also factors the demand elasticity and inelasticity. For example markets with a more broad demand are inelastic because of the broad variety of substitutes whereas narrow and more specific markets have easier to find substitutes. Time is a major factor to the elasticity of a demand. When looking at gasoline prices people have a negative relationship. Over time people switch to more fuel efficient cars of switch to public transportation. At the beginning people  react positively to the change in price, at first people buy the gasoline and after a certain time period they decide to change methods.