Essay

There are different determinants for supply and demand elasticity. Demand elasticity has three different determinants and supply elasticity has multiple determinants. The demand determinants are availability of substitutes, price relative to income and need versus luxury. The supply determinant is the ability to adjust to increasing or decreasing prices due to the nature of production. All of these determinants affect the elasticity.

The determinants of demand elasticity are availability of substitutes, price relative to income, and need versus luxury. Availability of substitutes is when there is a generic or “off” brand of a product; for example, you could by Coca-Cola or Publix brand cola. Price relative to income is when the price of a product in comparison to a person’s income will decide demand. For instance, if someone makes 40,000 dollars a year they won’t have a high demand for a brand new car that would cost half their income. The third determinant for demand elasticity is need versus luxury. If a person needs a product to survive the demand will be high no matter what; where as a luxury the demand may be high it will change based on price and be elastic where a need is inelastic. If you need cancer treatment to survive you will pay for it no matter what, but owning a Ferrari is a luxury and the demand will change based on the price. Demand determinants shape the market in this world because it determines how elastic a product is.

The determinant for supply elasticity is the ability to adjust to increasing or decreasing prices due to the nature of production. This means that for a product to be elastic based on production. For example, if the IPhone has an over production or surplus, the price is going to lower to get rid of the surplus. However, if production is slow and they are under produced there will be a shortage, so the price will increase. This greatly determines the elasticity of a product’s supply.

Determinants for...