Price Elasticity of Demand Assignment Example | Topics and Well Written Essays - 500 words

equipment casualty Elasticity of Demand - Assignment ExampleIf to a greater extent farmers decide to produce gamboge, the strike will be met. The price of soya in relation to edible edible corn also matters. The increase in the price of corn prompts contract for soybean but demand for soybean also depends on tastes and preference and income. Although the price of soybean decreases, it does not result to increase in its demand since preference is on corn which has multipurpose practice session hence income will be spent on corn and buyers will incur the opportunity live of buying soybean. Since both kinds of cereal use same raw materials, farmers will shift production factors from a production of soybean to corn production hence reducing acreage on soybean for lay more corn.The price of commodities is determined by forces of demand and supply. As long as the meter of corn petroleum produced is equal to quantity demanded, the market will be at equilibrium price and quantity. S ince the demand for corn is up it means demand for corn oil is also up hence quantity demanded is higher than quantity supplied. The buyers will compete for the available corn oil hence pushes the prices up. Baumol & Blinder (2009 p 57) argues that quantity demanded is also dependent on income, tastes, the price of other products and population size. If the price of corn oil goes up, buyers in response to price change will cut a quantity of demand of corn oil to alternative sources of energy which are cheaper especially if the price elasticity of demand of corn is high. If buyers bind increased income and have high-income elasticity they buy more corn oil thus increasing demand and pushing prices up.PEoD is used to measure the response of consumers demand to price changes all factors held constant (Moffat, 2010). Its the relative change in quantity demanded over a proportionate change in price. PEoD is affected by factors such as substitutes, a degree of luxury, time period and pr ice points (Bochholz, 1996). The higher the price elasticity, the more sensitive consumers are to price changes (Moffat, 2010).