Price Elasticity: The Law Of Demand

Elasticity Paper In this paper, we will examine the elements of price elasticity. Also, we will discuss substitute and complement goods and the differences between them. Price elasticity is a concept used in economics to describe how a change in price affects a demand or supply curve; specifically, the degree of change in reaction to a price change (Heakel, 2015). Elasticity is measured by dividing the percentage of change of quantity by the percentage of change in price (Colander, 2013). The Law of Demand says that when the price of a good increases, the quantity decreases. In that instance, consumers will search for a substitute for that good. A substitute is a good that can be used as an alternative to a previously purchased good that has undergone a significant price increase (Colander, 2013). A firm 's ability to produce a substitute good when necessary is the basis of the Law of Supply. On the other hand, a complement is a good that is used along with another good (Colander, 2013). Complementary goods are not used as substitutes, but rather as enhancements. Price elasticity can be affected by three factors influencing companies to choose substitute goods or complementary goods to boost their profits.
Factors of …show more content…
For example, in making mimosas (Champagne and orange juice), a consumer can choose many different options of champagnes and orange juices. For example, there are expensive champagnes like Moet, Kurg, or Dom Perignon. If these are too expensive ranging from $100-$1000.00 a bottle, there are Pierre Mignon, or even Laurent-Perrier which range from $35-4-50.00 a bottle. If this is still not in the range of a consumer, there are Prosecco or Brut Reserve for about $12.00, or even a Naveran Cava for $15.00 a bottle ("Pop The Bubbly", 2013). The part is the orange juice. Simply Orange is a very tasty orange juice and would compliment any