They want to know the amount of demanded changed when the price change. In other words, they want to know the elasticity which measures the responsiveness of demand. The two keys to understanding it is the sign and value of the answer. However, the PED tend to be a negative number because the quantity of demand fall when the price rise. So we usually more focus on the value.
Shows in figure 3. When the value of the price elasticity is less than one, the demand is price inelastic. When the value of the price elasticity is more than one, the demand is price elastic. And unitary elastic occurs when the value equals one There are many factors influence the price elasticity of demand: the substitute effect and disposition of income. Besides, demand is always likely to be more elastic in a long term(Sloman,2016:71). Also, the responsiveness of supply to a change in price is measured using the concept named the price elasticity of supply(PES). For supply, the sign of the answer is likely to be positive because more supplied with an increase in price. Shows in figure 4.
When the answer is less than one, supply is price inelastic. When the answer is more than one, supply is price elastic. And unitary elastic occurs when the answer is one.(Gillespie,2014:116) In addition, technology, capital investment, and government policy are factors determining …show more content…
Firstly, they take high risk with a tight budget because they cannot get the unsold goods off the ship to keep cash flow. Apart from this, suppliers have to pay the fees to get their goods off the ship or take delivery delaying cost which all increase the cost. Shows in figure 7.
The customers are waiting for receive these goods to stock the shelves in their stores which means the supply is decreased and the supply curve shift to the left. Also, approaching to the Christmas, the demand for goods going up which result in demand curve shift to the right (). Combining two factors, a higher equilibrium price is expected to showing up.
In addition, most ships in Hanjin Shipping is rent from freighter company. So these companies face a big problem that how to deal with this unsalable ships. Because of surplus in the shipping market, it is not sensitive to demand when the price change which means the price elasticity of demand is most elastic. Even the price of renting a ship decrease, the demand still keep low which brings low revenue to freighter companies. Shows in figure