Price Elasticity of Demand Essay Example for Free

Price Elasticity of Demand EssaySupply and entreat plays a brisk role in the economy. Price is the central determinant of both the demand and write out, for example the higher the equipment casualty of a good or a service the less the product is demanded. In circumstance where the bell goes down, demand developments. The response of price and quantity demanded create an inverse relationship between the two. Whereas demand portrays the consumer last making in purchases, summate is drawn on producers pass oningness to make profit (Parkin, 2002). The preponderant factor in determining price elasticity of demand is the impartingness and ability of consumers to easily switch from angiotensin converting enzyme good to another (substitute goods) in case of any price kind. If the demand for corn increases due to its handling as an alternative energy source, its supply will also increase making the soybean (substitute) supply and demand to go down. This will force farmers to shift their soybeans farms to produce more corn because of the increasing demand at the commercialise.The total revenue of the suppliers of corn oil will increase because of the increasing demand at the market. This is also because of other determinants of supply like price of the product a producer (farmer) is always aimed at maximizing his/her profits and minimizing his/her cost thus a rise in price will increase the producer willingness to supply and vice versa. Other factors that are likely to affect the supply of products include impose and technology, a producer aim at maximizes his profit but an increase will raise his expenses. engine room helps a producer in minimizing his cost of production-provided that mass production is possible with technology. Parkin (2002) hints that in a market setting, the law of supply and demand predicts that the price level tends to move toward the geological period that equalizes the quantity supplied and demanded. Therefore, residuum poin t is created a point where quantity supplied at the market and quantity demanded at the same market is in balance, where the supply curve crosses the demand curve.At equilibrium, when demand exceeds supply there is excess demand and prices will increase. On the other hand, when supply exceeds demand there is excess supply and prices will decrease. Such instances where supply or demand exceeds one another are very common in the market and will cause shifts in price. But when supply and demand balances, there will be no change in price. The price which makes the supply and demand to balance is referred as market price or equilibrium price. Reference Parkin, M. , Melanie, P. Kent, M. (2002). Economics. Harlow Addison-Wesley Publisher.