Factors affecting price elasticity of demand

Essay on the Price Elasticity of Demand

In some agricultural markets the momentary supply is fixed and is determined mainly by planting decisions made months before, and also climatic conditions, which affect the production yield. This means that the price elasticity of supply in the momentary period is zero (a vertical supply curve)

Many factors affect the price elasticity of supply for a product, in this answer we will focus on the market supply of coffee. The question asks us to focus first of all on the link between time and price elasticity of supply.

Supply is likely to be price inelastic in the short run because it may be difficult for coffee farmers to expand output and to increase their use of factors of production such as land and capital. In the short run at least one factor input is assumed to be fixed, for example the available stock of capital equipment.

Price elasticity of demand is another concept showing a change in the responsiveness of a good or service due to a change in its price....

Demand & supply are the basic factors that influence the movement of any commodity product prices. The law of the demand & supply is similar to equity as well as the commodity markets. However, demand & supply of all types of commodities vary during diverse time periods depending upon it’s seasons, domestic & global conditions and different other major factors changing its characteristics.

of Demand; Essay on Factors Affecting Elasticity of ..

Economic scenario considerably affects the prices of commodities. Demand & supply of any commodity have a direct relationship with the financial condition in the any state. Depending upon the behavior of the commodity global & domestic economic situations affects the commodity product prices. For e.g.; Steel prices, highly depend on worldwide economic factors as this is an internationally and the massively used commodity. However, as far as a commodity like Kapas (cotton) is concerned international factors affect less, when compared to nation factors.

Demand And The Price Elasticity Of Demand - UK Essays

A number of factors come into play in determining whether demand is price elastic or price inelastic in a given market

Modelling the demand for cigarettes has long been an interestof economists. Many economists once viewed cigarette smoking and other addictivebehaviours as irrational and therefore not suitable for conventional economicanalysis (Winston, 1980; Schelling, 1984). They believe that demand forcigarettes does not follow the basic law of economics including thedownward-sloping demand curve. However, this view has changed as a large body ofeconomic research demonstrates that demand for cigarettes clearly responds tochanges in prices and other factors. Demand for cigarettes has been studiedextensively since 1985.

Demand And The Price Elasticity Of Demand

Cross-country price comparisons of tobacco of the same typeindicate that prices have been altered significantly by trade restrictions anddomestic tobacco policy in major producing and consuming counties. Thus, tradeliberalization would lead to a change in the price of tobacco in the worldmarket. The United States has provided a price umbrella in the world market dueto its relatively large share of that market. The price of United States-growntobacco is significantly higher than from other major exporters in the worldmarket. Removal of the tobacco program would lower the price of tobacco in theUnited States by 20-30 percent (Zhang, Husten and Giovino, 2000). Thus, theprice of tobacco in both United States and world markets would be lower if tradewere to be liberalized. But how much lower the world price would be is difficultto estimate. While an analysis of cross-country price differences could providesome clues, it does not take into account the fact that tobacco grown indifferent countries is not a homogenous product and that the transportation costof shipping tobacco from different countries to the one destination would alsodiffer. The wide variations in prices, however, would continue, reflectingdifferent demands for various kinds and qualities of tobacco.

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Rezitis, Brown and Foster (1998) used a dynamic model toimprove the elasticity of demand for United States tobacco by United Statescigarette manufactures over the two previous studies. Their result showed thatdemand for United States tobacco was more inelastic. For example, they estimatedthat the total own price elasticity for United States tobacco was -1.46,compared with a value of -2.5 estimated by Sumner and Alston. The own-priceoutput-constant elasticity for United States flue-cured tobacco was estimated tobe close to -1.0 by Beghin and Change and -2.0 by Sumner and Alston, and only-0.4 by Rezitis, Brown and Foster.

Factors Affecting Demand Essay Examples - New York essay

Cigarette manufacturers use tobacco and other inputs toproduce cigarettes. An important question in determining the factors affectingdemand for tobacco is whether there exists a substitutable relationship betweenraw tobacco and other production inputs. Sumner and Alston (1987) examined thisquestion using a generalized Leontief cost function with data from United Statescigarette production. Their results showed that utilization of UnitedStates-grown tobacco was not a fixed proportion of cigarette outputs. Bothimported tobacco and other inputs were substitutes for United States producedtobacco. The estimated output-constant price elasticity of demand for UnitedStates tobacco was -2.3. The cross-price elasticity of demand for importedtobacco with respect to the price of United States tobacco was 2.0. Substitutingtobacco for the other production inputs according to their study occurred in twodifferent forms: increasing the proportion of additives to cigarettes andreducing tobacco wastage. These substitution processes were accomplished throughdeveloping new production technologies. The leaf-conserving technology hadincreased the filling capacity of tobacco. Other technology also permitted theuse of the entire leaf. Because of this substitution, the amount of tobacco usedto produce 1000 cigarettes had fallen from 2.70 pounds in 1950-54 to 1.70 poundsin 1987 (Sumner and Alston, 1987).

Demand and Supply Factor Affecting Revenue Generation * Price elasticity of demand describes how much a change in price will affect the ..

To learn more about substitutes and complements, see the toolkit for formal definitions. (These definitions are presented in terms of the cross-elasticity of demand, which is a measure of how responsive the quantity demanded is to changes in the price of another good.)