Assignment focuses on the effect of elasticity of demand of products & services on market also discussing its examples.

Home, - Elasticity & the markets

During the drought condition, it results in the scarcity of the product. The demands are high while the product supply remains low. The drought condition eventually results in the pressure points which can result in the devastating results and consistently can impact the economy. In the condition of the drought, it would eventually result in the high marginal cost of production related to the red meat (Hursh,2017). Initially, due to the high costs of the other food prices, the red meat would be sold cheaply as it would be considered an alternative and a substitute. But gradually after a while, the livestock would be held and the prices would be renegotiated. It would lead to an affected prices of the supply of the red meat (S to S’). It would also make an impact which can make a lower equilibrium quantity of red meat with respect to the higher equilibrium price. The first process would be selling off the livestock as the drought condition would make the farmers unable to meet the needs and feed their livestock. They would try to sell it cheaply, making a low price and fall from the equilibrium level. It would result in an increase in quantity supply from Q 1 to Q2 points. D1 rises to D2 and S1 rises to S2. It would lead to a higher equilibrium. Gradually, it would lead to retain of the livestock as it would impact the farmers who wish to retain some of them. The red meat would consecutively rise higher with the given low equilibrium and rise to a P2 level at a Q 1 supply. The market forces would make a balance of the equilibrium at a higher rate and higher equilibrium level.

Price elasticity depends on the close availability of the subsidies and the sensitivity of the price. The demand for any given product is determined to be elastic if at all there are close substitutes or even during the time when the consumer has a relative time to even consider searching for the substitutes as an alternative. It would hold to be part of the product that would even consider a large percentage of consumer's budget. Elastic demand determines if there has been a significant fall in the price which may impact into the increase in the total revenue.  The related inelastic demand relates to the means which can eventually lead to a considerable fall in price which can also result in the shrink of the total revenue. Here as initially during the drought condition, red meat was considered to be the best cheap product in comparison to the other food products which were surging high (Pigou, 2017). So the price elasticity was at an initial level to be inelastic, it was not very sensitive to the price. Gradually, when the livestock became low and the farmers wanted to old, its close substitutes also became widely less. The price sensitive became high to the demand. the red meat became elastic in price responsiveness and demand.

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