Differentiating Between Market Structures Case

Elasticity Paper

John Kellum, Richard Powell, Sarah Ricard, Fred B. Whitty

ECO/365

February 12, 2015

Robert d' Alessio

 Elasticity of demand can be measured by the rate of responsiveness to the level of commodity to changes. Primary factors that affect demand are such as price of items and income changes. Elasticity of supply can be measured to the level of which the quantity of the commodity responds to changes in factors such as alternatives and level of production. If the quantity of cars changes dramatically, you’d say that the demand for a vehicle is elastic as it expands and more people will find ways to maybe purchase vehicles or limit the amount of alternatives ex. Public transportation. If the quantity changes slightly the demand is inelastic meaning that there isn’t much give or room to stretch.

Elasticity can be determined by 3 major factors: needs versus wants, time frame and the amount of the purchase. When it comes to purchasing a new vehicle, need versus wants play a huge factor. You can either get the base model vehicle, which has your basic needs. Four wheels, an engine seatbelts, things that make it a necessity for you to get from point A to point B. Elasticity can come into play depending on the amount of money you’re looking to spend to cover the needs, to wants. It’s not a question of if you need a turbo or an upgrade sound system, those wants factor into how much you’re looking to expand from needs.

Time plays an important factor is elasticity also. You’ll be more inclined to purchase that vehicle sooner if it’s the last one on the lot, as opposed to waiting a couple of weeks to gauge the need vs. want factor. Time also plays into finding a substitute for a new car. You may find it necessary to continue to car pool or take public transportation. The longer the time available, the easier to find alternates and the more elastic a new car becomes.

The amount of the car will also influence elasticity and play into need versus want. An extra $500 here or there for upgrades makes the need more elastic to a want. It’s finding that happy medium between needs versus wants and how elastic you can be with your budget.

 When discussing substitutes and complements the main idea is the impact of the quantity demanded.

The difference between the two is the substitute is something that one can use instead of a particular good or service. And the complement is used in conjunction with a good or product.

To name an example of substitutes used Coca Cola or Pepsi come to mind. They are both similar in the respect of taste, and an individual may be ok with choosing one or the other when thirsty if it is less expensive, the cost difference may influence one to substitute for the other product without feeling like the quality of the product is compromised. Another example of substitute is chicken or turkey. If a family is looking to purchase poultry for dinner, if chicken is more expensive then turkey that individual can substitute the turkey and still have a poultry protein.