Supply, Demand, and Price Elasticity
Supply and demand are common terms within economics. This also means that each term is dependent on each other. For example if a price goes up, the demand comes down and if the demand goes up the price comes down. Equilibrium occurs when both the demand and supply are equal or are in balance with each other. Price elasticity is the “measure of how much one variable responds to change in another economic variable” (Hubbard & O’Brien, 2010, p. 168). In this case the concern is how supply affects demand and vice versus.
Supply, demand, and elasticity use commodities to express their positions and explain their worth. A commodity is basically a form of a good that can be sold, bought, or used as a form of currency or bargaining power. Some examples of common every day commodities used by many are wheat, salt, sugar, coffee, corn, crude oil, diesel fuel, gasoline, fruit, gold, and silver. Commodity markets also have time lags. The long-term effect on demand is usually higher than short-term effect; however, the difference in elasticity will be higher on the supply side of the market (Karlsson, 2008).
In this paper, the discussion is about gasoline as the primary commodity, its shifts in supply, demand and how these shifts influence price, quantity, and market equilibrium. The paper will also determine whether gasoline is a necessary commodity or a luxury product and will identify the availability of substitutes for gasoline. Finally, an explanation of how the necessity of gasoline and the availability of the substitutes will affect the price elasticity of the product is appropriate.
The price of gasoline is always shifting. Americans feel as if gas is usually shifting upwards; however, this is not always true. Supply and demand drive the price of gas. Americans are a large part of causing the changes in prices. An example of this is during the spring and summer months of each year,...
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