Elasticity of demand

Response to Sandra Cottle

Good Morning Sandra. In business entity, profit is usually realized after adding a desired amount of money on the cost of the products one is selling in the market, in your case, the oranges. Mostly, the consumers being rational will prefer to buy more baskets of goods using their income, hence they will prefer to buy at lower price (Green, 2019). This is closely related to elasticity of demand where customers buy more of the product due to fall in price if it is necessary to support their living. Therefore, when you asked instead of bidding, you sold at a lower price that ate your profit in second and third oranges. The customers were more intent on buying oranges but not on whether you are closing shop. Thus, taking into account the required profit in your business will help you determine the selling price that will earn you profit.

I agree with you that price elasticity of goods will be affected by the availability of substitutes with goods with more substitutes being more price elastic while those with no substitutes or few substitutes being less elastic or inelastic. This is because consumers have few options if the price changes in goods with no or few substitutes making them buy at the new price (Petryni, 2021). Further, I agree with your observation that there exists three forms of price elasticity, namely price elasticity of demand, cross price elasticity and income elasticity of demand. Price elasticity is affected by the availability of substitutes, the nature of products and income of the consumers as you have highlighted. For instance, luxurious goods will be more elastic if the consumer income increases and change in price will not affect them.


Green, J., (2019).Use of Elasticity of Demand in Business Management Problems: Small Business, Managing Employees, Business Management. https://smallbusiness.chron.com/use-elasticity-demand-business-management-problems-10523.html image_18877224331626401089683.png

Petryni, M., (2021). Relationship Between Level of Prices and Demand

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