Many factors influence the course of business and the economic climate as a whole. Supply and demand, price elasticity and how characteristics of the economy are assessed and controlled are factors that can greatly affect each and every consumer, business and government worldwide. It is important to have a basic understanding of economic principals.
The law of supply is a basic economic principal that correlates the relationship between price and quantity. This law simply states if price increases so does the quantity. Price and quantity follow the same positive upward pattern. This can be seen when manufacturers increase production thereby creating the ability to offer more products for higher prices which results in greater profit. An individual producer cannot determine the market. Market supply curves are determined by the comparison of all producer’s quantities and pricing.
Pricing is affected by what is described as elasticity or inelasticity. Elasticity occurs when consumers are sensitive or likely to be affected by price changes deterring them from purchasing. Inelasticity occurs when consumers are not sensitive to price changes and will purchase the product irrelevant to the price. Determinants of price elasticity may include; the availability of a substitute, the budget of the purchaser and how the purchase will affect it, is the product essential or necessary and how often would one purchase the product. For example: bottled water has no substitute, therefore, the demand for it can be considered inelastic. There is no substitute for toothpaste and it is also a relatively inexpensive product so, demand for it too, can be considered inelastic. Crest toothpaste, however, is a brand name and there are other very similar toothpastes available. Consumers would be inclined to purchase another brand if the price were comparably less therefore, demand for it would be considered elastic. Ketchup is a one of a kind inexpensive condiment,...