Supply and Demand Essay Example | Topics and Well Written Essays - 500 words - 3

Supply and Demand - Essay Example As such, if the price change leads to an equal change in commodity demanded then that results to a uni elastic demand (Ferguson, 1972) Elastic demand refers to the demand for which the price elasticity is greater than 1. As such, if the demand elasticity is greater than 1 it means that the percent change in quantity is much higher than the percent change in price. Unit elastic demand occurs if the quantity demanded is directly proportional to the price change meaning the coefficient of elasticity is equal to 1. While inelastic demand, occurs when elasticity coefficient is less than 1. This implies that the percentage change in the amount of quantity is less than the price change. Cross price elasticity of demand is the rate of change the quantity required due to the price change of the other commodity (Gillespie, 2007). As such, when two good are substitutes, consumers tend to purchase more of one good due to increase in the other substitute. Similarly, for complementary commodities, price increase in a commodity causes a reduced demand for all goods. Moreover, cross elasticity of demand points out the sensitivity of a particular commodity to price change. For a normal good, increase in income results in an increase in the demand. This is seen as the coefficient of elasticity of N>0 (Ferguson, 1972).For an inferior, an increase in price leads to a decrease in demand. In this case, the coefficient of elasticity is N1. Notably, a superior good exhibits the same coefficient of elasticity similar to normal good. Demand