Elasticity is a term that describes how much the demand or supply for a product or service changes in relation to that product’s price. Each product on the market today has a different level of elasticity. Products considered to be necessities by a majority of consumers are typically less affected by price changes, causing them to be less elastic. By contrast, if consumers do not consider a product to be essential, they are likely to buy less of it if the price is increased, making that product elastic. The two markets I choose to discuss are Airline Industry which will be characterized by an elastic demand and Pharmaceutical Companies (Insulin) which will be characterized by an inelastic demand.
Such occurs in the lower portion of the demand curve. If the demand is perfectly inelastic, quantity does not change at all. Thus A perfectly inelastic demand is vertical, for example consumers occasionally see certain items as necessities which then makes the demand for these items to become inelastic , because regardless of the change in prices these items are essential to our wellbeing thus consumers have to purchase those items for instance oil . Oil is inelastic on the grounds that it is an ordinary item which in economic terms its seen as a normal product, if the value goes up the customers will at present need to purchase it on the grounds that there are few substitutes, for example, the gas and the efficient power vitality, and the oil is need for the buyers. Be that as it may, any expand in the cost of oil won't prompt reduction in the utilization in substantial amount.
An expansion of the economy brings about a corresponding increase in quantity demanded for normal goods while a contraction in the economy causes a decline in the demand for the normal goods. On the contrary, the demand for inferior goods is not recurrent (Pech 24). The more the positive value for income elasticity of demand for a product is, the more sensitive consumer demand is to the fluctuations in national income. Banks can take advantage of the income elasticity of demand by analyzing the patterns in demand for money by its customers as their real income changes. Banks can provide customers with more credit cards should there be a period of economic expansion marked by a substantial increase in the income of customers (Hosek 5).
Therefore, in the short time, consumers are getting more careful with their discretionary spending and this lead to a serous drop in passenger volume. Consumers are not ready to pay former prices for airlines. These changes affect a change in demand of air flights. Besides, customers are intend to choose a cheaper costs airlines operators when the economy is suffering It is considered that the airline industry is a cyclical system. Airlines have to scope with high fuel prices, labor demands, operating and maintaining costs, and declining passengers.
We can look out for the examples of elasticity of demand very easily. For an instance the fall or rise in the price of food, shelter and machines do not show elasticity of demand, as they fall into the category of basic needs of people and so are inelastic in nature. But if there is any slight change in the price of liquor, or any other luxuries which are elastic in nature you can notice the fluctuations in the elasticity of demand. Elasticity of demand can be classified as: Price Elasticity Demand: In this situation a rise or fall in the price of a commodity is directly proportional to the change in the demand of the commodity. Income Elasticity Demand: In this situation a rise or fall in the income of the buyer is directly proportional to the change in the demand of the
Both in the planes or in the airport. Summary: The market is globally growing due to highly educated customers willing to travel, the political scene trying to reduce countries borders. The Technological innovation helps the industry to target
The five forces are listed as below: i. Threat of new entrants For the period of 2001-2004, the threat of new entrants in airline industry is low due to the economies of scale, capital requirement and government policies. The US airline business has been immensely affected by the September 11 tragedies where terrorists used appropriated American and United aircrafts to crash into the World
This can be shown in graph 3. There are many factors that affect the value of price elasticity of demand, examples are the more close substitutes there are the more elastic the demand will be because consumer has a substitute to switch to. Necessities have an inelastic demand. For lower-income countries, rice is a necessity because some has low price elasticity of demand. The proportion of a consumers’ income also affects the elasticity of
Food has a relatively inelastic demand. Its mean that as the price changes, the demand does not change much. On the other hand, we can observe that the food so expensive at the airport. For example, there are people who will buy some food to eat at the airport whilst waiting or latecomers who do not have time to spare for consuming homecooked meals so they
Throughout the last century the shipping trade has seen a general increase in total trade volume. Increasing manufacture and also the relaxation of national economies have fuelled trade and a growing demand for shopper product. Advances in technology have additionally created shipping more and more economical, swift technique of transportation. Over the last four decades total mobile trade estimates have quadrupled, from simply over eight thousand billion tonne-miles in 1968 to over thirty two thousand billion tonne-miles in 2008. like all industrial sectors, however, shipping may be liable to economic downturns. Indeed, following many years of implausibly buoyant shipping markets, for several trades the most effective in living memory, abundant of the international shipping trade has fallen prey to the worldwide economic downswing.