What Is Price Elasticity Of Demand?

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In order to fully understand the significant fluctuations in the resource and product market of natural gas, we must first know what a resource market and product market is and its effect on natural gas production. My understanding of a product market is where the goods and services produced by businesses are sold to consumers and resource market consist of the labor and resources that goes into producing these things are marketed. The utility firm in essence is the relationship of the product market and resource in regards to supply and demand of a good. In the body of the essay below, I will examine price elasticity, principle agent problem, and whether the nature of my local market is monopolistically competitive, oligopolistic, or a …show more content…
Economically speaking, that relationship is termed price elasticity of demand. Price elasticity of demand is the percentage change in quantity of a product demanded divided by the percentage change in the price that caused the change in quantity. It indicates how responsive consumers are to a change in a product’s price. For example, when gas prices rise, there is normally a drop in the amount of petroleum sold by gas stations. Not only is the amount of gas purchased affected, but where gas is purchased is also affected. People have a tendency to “shop around” for the cheapest gas especially when gas is over $3. Gas prices also affect the sale of vehicles on car lots as well. Price elasticity essentially causes a domino effect from affecting gas purchases, to changes in the amount of gas purchased store by store, to a decline in the number of vehicles purchased from car dealerships. This further supports the law of demand which states that an increase in a product’s price causes a decrease in purchases and a price decrease results in sales increases. So figuratively speaking, people live for price

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