Elasticity

                                     ELASTICITY

PRICE ELASTICITY OF DEMAND:price elasticity of demand is the way of seeing how sensitive is the change of quantity to the price. In other word if a price of a good goes up what will be the amount of that good consumed. people are very sensitive to Price elasticity of demand (PED).Eg : if a customer who buys bread of G BRAND every week suddenly finds that the price of the bread has gone up ,then from the very week she will look for other company bread.an example of elastic demand can also be mcdonalds in fast food market if the price of mcdonalds goes up to a high extend then the consumers are surely going to stop having mcdonlds burgers and may turn to other substitute food marts like KFC,WENDYS ,etc. this rise in price is going to cause a fall in the price of mcdonalds sale.their may be other factors that also affect the price elasticity of demand .the main other 3 factors may be closeness of the substitute goods,the income every consumer spends and the time elapsed or decision time.

CROSS ELASTICITY OF DEMAND:it is an economic concept which measures how responsive the quantity demand of  one good when their is a change in price of some other goods.their are 3 main types of goods:(a)positive good,(b)negative goods and (c) nuetral goods.An example of positive good could be like this, if the price of substitute good( in this case we shall take KFC )  rises then the demand for Mcdonalds will also rise.negative goods act as complements which means that if the price of complementary goods is high lie if the fries and the coca-cola price increases and since these 2 are complementary for burger then the meal value will automatically rise causing the demand of mcdonalds burger to decrease.wheras the goods that are nuetral will have no relationship whatsoever with the goods.

INCOME OR YIELD ELASTICITY OF DEMAND:Income in easy words means the value a person receives for their work. Basically, this elasticity of demand measures how the quantity demanded of the goods responds to the change in income while other factors remain the same.Fast food industry if goes through a survey then we will see that it is mostly common amongst the younger generation , consumers are usually those who do not have time to cook healthy meals (students ,workers who have just started their jobs and to some extend during family outing).this elasticity process can have two different affects. One way may be that if the income of consumers rise then the demand for Mcdonalds will also rise since they can afford greater amount.Eg: if a student who was receiving 10 RM from her parents for her lunch suddenly starts to receive about 30 RM  then she is sure to take her friends to eat what they usually have . She then takes them to Mcdonalds for lunch this will obviously cause an increase in the income of Mcdonalds and  also in the demand.But the other outcome may be that due to the rise in the income consumers wil no longer eat in Mcdonalds but will search for luxurious places to eat, it may also be because people are getting very health oriented and may want to start healthy lifestyle so this will cause a fall in the demand due to the rise in the income.The price elasticity of supply is used to see how sensitive the supply of a good is to a price change. The higher the price elasticity, the more sensitive producers and sellers are to price changes. A very high price elasticity suggests that when the price of a good goes up, sellers will supply a great deal less of the good and when the price of that good goes down, sellers will supply a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on supply.

PRICE ELASTICITY OF SUPPLY:

The price elasticity of supply is used to see how sensitive the supply of a good is to a price change. The higher the price elasticity, the more sensitive producers and sellers are to price changes. A very high price elasticity suggests that when the price of a good goes up, sellers will supply a great deal less of the good and when the price of that good goes down, sellers will supply a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on supply.Price elasticity is always said to be greater in the long run  since the suppliers will get more time to accumulate resources and will be encouraged to expand. If the amount of cost of production is less then the motivation level will reach to a higher level to produce more .Eg: as Mcdonalds is a really big franchise and is always adding new outlets so for thenm the production cost is also low this helps the suppliers alot in the long run and the suppliers are motivated to supply to Mcdonalds.time frame is also a very important factor in the supply , since the suppliers take more time to evaluate and search for resources then to prevent this from happening the suppliers should b given replacement goods so thet they can get it at a faster time span .Eg if mcdonalds is selling beef burger but since beef gets out of stock then they can ask the suppliers to get more of fish for their fish -o filet burgers.