elasticity of reactions called the level of one economic variable, while the other changes.In other words, the elasticity - a relation of supply and demand for goods from the various price and non-price factors.
Highlights
Dependence factors such as supply and demand, is in many factors.Since it is linked to the term elasticity.
In theory, the economy recovered notion of elasticity of supply and demand.
elasticity of demand for the product is the percentage change in prices or income to changes in demand.It exists to control how consumers react to the rise and fall of prices.
Economic theory distinguishes several types of price elasticity of demand, based on the performance factors:
- demand elasticity (greater than one).It includes items that belong to the category of luxury.
- inelastic demand (less than one).This category of basic necessities.
- with unit elasticity of demand (equal to unity).These include products which the consumer chooses individually.
- perfectly inelastic demand (zero).Products such as bread, salt, medicines.
- perfectly elastic demand (equal to infinity).There is only in the conditions of perfect markets.
the price elasticity of supply is the percentage price changes with a change in the level of demand.In this figure are influenced by such factors:
- presence / absence of reserve production (if there are reserves, the proposal is flexible).
- Ability to save stocks of finished products (if so, the proposal is flexible).
main types:
- elasticity of supply.Even with a one percent increase in prices significantly increased demand for the products.
- proposal with unit elasticity.If one percent price increase is similar to the increase in supply on the market.
- inelastic supply.With an increase in prices to the proposal, nothing happens.
- elasticity "in the moment".The time period is so small that manufacturers and sellers do not have time to react to price changes.
High elasticity in the long term.It offers more elastic, because manufacturers enough time to create new production capacity, or speed up the production process.
analyzing supply and demand, it is possible to identify the main trends in the changes of these concepts related to price or non-price factors.Thanks to this law was formulated by supply and demand.Often researchers are insufficient data that the increase in prices leads to a reduction of demand for products.They need accurate quantitative estimation, because the decline is rapid, slow, weak or strong.
market sensitivity with respect to pricing, revenues, or other indicators of market conditions is reflected in the elasticities, which are characterized by a special factor.
Background
concept of elasticity in economic theory emerged late, but quickly became one of the fundamental.The general term in the economy came from the natural sciences.Robert Boyle in the seventeenth century in the study of the properties of the gas for the first time used the term "flexibility".But economic definition only gave Alfred Marshall in 1885.English scientist was not invented the concept.Using the achievements of Adam Smith and David Ricardo, he gave the first clear definition of the coefficient of price elasticity of demand.
To date, there is no one section of the economy, which would not be used the term "flexibility".Here and demand analysis with the proposal of the theory of firms and economic cycles, international economic relations, and economic expectations of others.Flexibility - a term, which is essential to the existence of a modern economy.
Classification elasticity
Types of economic term called:
- price elasticity of demand;
- the price elasticity of supply;
- income elasticity of demand;
- cross-price elasticity of demand;
- point elasticity of demand;
- arc elasticity of demand;
- elasticity of a straight line;
- technical elasticity of substitution;
- elasticity of relative prices and wages.
point elasticity - is constant along the lines of supply and demand.It is measured in one point, hence the name of a term.Point elasticity is an objective measure of the sensitivity of demand and supply to changes in prices or income.
Arc elasticity - about the level of response.It does not provide accurate data (as opposed to a point).Arc elasticity of demand is the average of the supply and demand to changes in prices or incomes.It is necessary to quickly assess the overall situation in the market.
elasticity coefficient value of the coefficient of income elasticity is responsible for the degree of quantitative changes in one factor (the amount of demand or supply), while the other changes (price, income or expenses) by one percent.
elasticity of supply and demand ratio is calculated as the change in the level of demand (supply) to a change in any determinant percentage.Determinant - a factor that has an impact on supply and demand.The coefficient of elasticity depends on the parameters determinants.
variety of products differ from one another degree of change in the level of demand under the influence of various factors.The degree of responsiveness of demand for these products quantifiable change by a factor.The change affects the elasticity of the demand situation in the market as a whole.
This term refers to the process of adaptation to changes in the market system the main factors.These include product price, the buyer's income and commodity price equivalent.
counting method
income elasticity coefficient is calculated in several ways.In the calculation, there are two basic methods:
- Arc elasticity or flexibility of the arc.It is used to measure the elasticity between points on the supply and demand curves.It implies knowledge of the original, and the next level of price and volume.
- Spot flexibility or elasticity of the point.It is used when there is evidence of the functions of demand (supply) and the initial price levels, as well as the magnitude of demand (supply).This formula is applied with little change in prices or any other parameter.
Basic properties
Based on the definition, functions and formulas, follow these elastic properties:
- elasticity is immense value depending on the units that measure the volume, price or other parameters;
- elasticity of the reciprocal function is the reciprocal value.
There are three main options depending on fluctuations in the market prices of the volume of demand:
- inelastic demand.It occurs when the number of purchased goods increased by less than one percent for each percent reduction in price.
- By increasing the products purchased by more than one percent and lower prices for the percentage of the demand becomes elastic.
- concept of unit elasticity occurs when the quantity of production is doubled due to a decrease in its price in half.
Factors elasticity of demand
- time factor (long-term period, characterized by a more elastic demand).
- presence or availability of goods-analogues (if these do not exist, the risk of reduced demand minimum).
- Part of the cost of production, which laid the consumer budget.
- level of saturation of the market products.
- possibility of using products.
- importance of this product for the consumer.
Factors inelastic demand
consider those moments, which directly affected the consumer:
- he prefers products with good characteristics (demand is inelastic for the price, if the product does not work or is deceiving the expectations of the buyer);
- consumers often order goods manufacturer (in this case, he is willing to pay more);
- buyers may not be sufficiently informed about the specific product;
- price of goods is low in comparison with the budget of consumers;
- buyer has the opportunity to save on a certain type of goods.
Income elasticity of demand
defined as the level of quantitative changes in income for every percentage.Revenue growth increases the opportunity to make purchases, the demand also increases, and the elasticity of demand is positive.
If the coefficient of elasticity is small (more than zero but less than one), then it is a product of prime necessity.If greater than one, it's a luxury.
As for goods of poor quality, there is income elasticity of demand is negative (less than zero).Elasticity - an indicator which is constantly changing depending on the market situation.
Cross elasticity of demand
This ratio shows the rate of change in demand for one product, while the price for changing one percent.It can be positive, negative, and zero.
If the ratio is greater than zero, the products are interchangeable, if less, the products complement each other.In that case, if the coefficient of cross-elasticity of demand is zero, then the items are independent of each other and have no effect on demand.
main factor cross-elasticity of different products - consumer properties of goods, their replacement or supplement.
One of the most common phenomena in the market - is the elasticity of the product.Cross is asymmetrical in nature: one depends on the other products.
Researchers identify difficulties in defining the boundaries of industries using the coefficient of cross-elasticity.These include the following factors:
- hard to determine the admissibility of a high level of cross-elasticity in certain sectors.For example, the cross-elasticity of frozen vegetables a company is very high, but the production of the dough and frozen vegetables together - quite low.Accordingly, it remains unclear whether it is necessary to speak of two branches or individually.
- circuit for cross-elasticity (for example, a high cross-elasticity will occur between color and black and white TV).
elasticity of supply
coefficient of price elasticity of supply is the level of quantitative changes, while price changes by one percent.
degree of transformation in supply depending on the changed price elasticity of supply is the price.The measure for this change - the coefficient of elasticity of supply, which is calculated as the ratio of volume to increase prices.
factors that determine the price elasticity of supply:
- timeframe (instantaneous - inelastic, short - to adapt to changing price, long-term - FLEX);
- possibility of prolonged storage of finished goods and purchased raw materials for their production;
- specifics of production work (amount of work spent on the manufacture of products);
- maximum output with the full load capacity.
Price elasticity of supply is changing due to the impact of technological progress, quality and quantity of raw materials and other resources expended.
to a decrease in the elasticity of the proposal is strengthening the limited raw material, which is used in production.
Conclusion
Flexibility - a response rate of economic indicators at each other.
functions of supply and demand depends on a large number of price and non-price factors (determinants).
elasticity of supply and demand functions is characterized by sensitivity parameters of demand and supply to changes of a factor as a percentage.In order to establish the elasticity in this or that point, you need to find the partial derivatives of supply and demand for a particular determinant.
