Introduction to Elasticity and Equilibrium

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Introduction to Elasticity and Equilibrium

The article Introduction to Elasticity and Equilibrium highlights how economists use the concepts of elasticity, supply and demand to explain the behaviors of consumers and producers. A detailed description of how supply and demand are microeconomic models that are used in product price determination in a market. Elasticity is defined as the measure or the degree at which economic variables change due to changes in other economic variables. In a stable competitive market, the unit price of a certain commodity will evolve until saturation point where the amount demanded by consumers equals the amount supplied by producers. The point of demand and supply equality is referred to as economic equilibrium for quantity and price. Economic equilibrium is used to determine the status of commodity pricing within the business industry. Demand and supply are the main variants in price elasticity and change in one-factor results to changes in the other two factors. Demand is dependent on the consumer market while supply is dependent on the producer. According to the article, supply and demand are governed by four basic laws of price equilibrium.

The first law of equilibrium states that if there is an increment in demand and the supply quantity remains unchanged, the resultant effect is product shortage. Product shortage results in higher price equilibrium. In a demand-supply graph, the demand curve moves to the right side. The second law of equilibrium states that, if there is a fall in demand and the supply quantity remains unchanged, the resultant effect is product surplus. Product surplus results in lower price equilibrium. In a demand-supply graph, the demand curve moves to the left. The third law of equilibrium states that, if demand remains unchanged and there is an increment in supply, the result effect is product surplus. This result in lower price equilibrium and the supply curve moves to the right. The final rule states that, if demand remains unchanged and there is a fall in supply, the resultant effect is product shortage. The result is higher price equilibrium and the supply curve moves to the left.