Price elasticity of demand
Marija managed to explain perfectly what is the price elasticity and what are the factors that affect it: availability of substitutes and time. In overall, it is a very scholastic presentation since Marija gives in detail how the demand of goods is changing according to the availability of substitutes, the fluctuation of the price of goods, and what impact they have on the consumers if all the other factors are being stable. Though, there is a point of which I would add some more clarification information. Marija correctly refers to water as an example of inelastic demand. She refers to juices, sparkling water etc. as substitutes of the most essential substance for the living organisms on earth. This cannot be replaced because it is vital for our health. Furthermore, these substances (or substitutions) do not include the necessary ingredients which mineral water provides to our organism. Subsequently, the demand for this product is increased, no matter the fluctuation of the price. As far as it concerns the example of rice, I totally agree with Marija, since there are a lot of other substitutes of rice. So, with an increase on the price of rice, the demand will decreased and the consumers will turn to the substitutes (elastic demand). Also, according to the customer`s need and consumer habits, preferences and health (some people are allergic to wheat, so are advised to avoid gluten), the demand for rice is low, even if the price is far above the line (again elastic demand). Nevertheless, the rice and more specific the wheat (main ingredient of rice) is an important element for the living organisms, and the demand, no matter the price is, is always high (inelastic demand) because the products that outcome of wheat, can be consumed as a full meal (rice, spaghetti, bread, cereals). However, Marija did not analyze how time effects on the variation of demand which reflects on price elasticity. A good example is given such an increase of...
Please join StudyMode to read the full document