Elasticity Essay

729 words - 3 pages

There are two types of related goods: substitutes and complements. Two goods are substitutes if they satisfy similar needs or desires. Two goods are complements if they are consumed jointly. The demand for a good in a particular market area is related to the number of buyers in the area: more buyers, higher demand; fewer buyers, lower demand. This merged learning team also reviewed pertinent information on the substitute goods and complements goods, and then discussed the importance of each related goods by giving different examples. In the following summary, there are highlight of the results from the group discussion and further explain the sometimes tumultuous, yet necessary relationship ...view middle of the document...

Shaving cream is not a necessity for shaving so many consumers will forgo the shaving cream if they are paying more for razors.

A substitute is a product or service that meets the needs or wants of a consumer that another product or service satisfies. In addition, a substitute can be considered an imperfect or perfect substitute whether the substitute is one or the other depends on if the substitute partly or entirely meets the needs or wants of the consumer. For instance, a consumer may consider Stevia to be a perfect substitute for granulated sugar. If however, a consumer believes there is a difference between the two, he or she will believe Stevia to be an imperfect substitute.
In order for a product or service to be thought of as a substitute for another good, it must have a relationship with that good. A substitute highly influences the elasticity of a product or service. The more substitutes there are the more elastic the demand will become. So, if the price for granulated sugar increased by $0.50, consumers may replace the product with Stevia. Granulated sugar is an elastic product because the increase in price causes a decrease in demand because consumers switch to buying more Stevia instead of granulated sugar. When a product is very...

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