Elasticity; Demand for Goods

Demand for Goods.

You can have demand for normal goods.

-inverse relationship between price and demand.

Demand for inferior goods.

-demand for goods that are cheap and available to low-income people.

Some goods are in derived demand, meaning that this demand emerges from something else.

Some goods are in composite demand , this is where demand for one thing is composed of two distinct and exclusive demands.

DO NOT CONFUSE COMPOSITE DEMAND WITH JOINT SUPPLY

Joint supply is where two goods come from the same source at the same time.

Elasticity.

Inelastic demand.

• Goods are usually necessities
• Things people are addicted to
• Markets are 'sticky'

Elastic demand.

• Consumers are very sensitive to price change
• Goods can be traded very quickly

Price Elasticity of Demand is the relationship between price and demand or responsiveness of price to demand.

PED= % Change in Demand/ %Change in Price

If elasticity is 1 or more= Elastic (+/- can be neglected in this case)

If elasticity is 0 or near zero= Inelastic

• It is easy to substitute an elastic good
• It is easy to abandon it
• Consumers are sovereign, price makers

Both demand and supply can be price inelastic or elastic.

Demand.

• Necessities
• Compulsory products
• Public goods

Supply.

• Agricultural goods can be limited by geography
• Non-renewable sources are limited by quantity
• Limited by cost or number of firms

Types of Demand.

PED= % Change in Quantity Demanded/ % Change in Price

Price Elasticity of Supply= % Change Quantity Supplied/ % Change in Price

Income Elasticity of Demand= % Change Quantity Demanded/ % Change of Income

Cross Elasticity of Demand= % Change Quantity Demanded of Good A/ % Change in Prices for Good B