Elasticity of Demand and Supply As Price Essay

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Elasticity of demand and supply as price increases is an important concept which helps us understand how changes in price affect demand for a certain product. In this case, we shall be discussing the price elasticity of beef and eggs to see how the price changes for each would affect demand for them. In true economic sense, price changes have an impact on consumption patterns and hence on demand provided the income and other factors remain constant. In this case, we assume that price of beef and eggs has increased but all other factors including income have remained unchanged.

INCREASE IN THE PRICE OF BEEF:

Let us assume that price for one pound of beef was previously $1.50. But in the last one week, it has risen considerably to $2.25 per lb. Since income is constant, that factor doesn't come into play and only price alone can be held responsible for changes in demand. When price of beef goes up, people will consider some important things in their minds before they decide how to respond: a. they would want to know if beef has close substitutes, b. is it a luxury or necessity item and c. If there has been any change in the price of available substitutes.

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Since beef is not the only kind of meat available, it means it has come close substitutes that people can switch to while the price is high. Instead of using beef, they can always use chicken or fish and therefore their consumption of beef can reduce considerably thus bringing down the demand for beef.

Since beef is not exactly a necessity item, it can be given up, even if for a limited time.

If the price of chicken or fish or other substitute meats increases while the price of beef is high, then the change in demand of beef would not be as dramatic as in the case of no change in price. For example if the price of chicken per lb. also goes up to $2.25 per lb. Or closer to it, people will continue to use beef instead of moving to substitutes. However if chicken is still $1.50 or lower, people would give up beef easily thus causing a dramatic change in demand for beef when price is high.

INCREASE IN THE PRICE OF EGGS

The same questions that a person would consider in the case of beef would also be considered in case the price of….....

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