2. Demand and Supply
Economics begins and ends with
the “Law” of supply and demand.
The laws of supply and demand
are an important beginning in the
attempt to answer vital questions
about the working of a market
system.
2
3. Demand
Demand for a good or service is
defined as quantities of a good or
service that people are ready
(willing and able) to buy at various
prices within some given time
period, other factors besides price
held constant.
3
4. Supply
The supply of a good or service is
defined as quantities of a good or
service that people are ready to sell at
various prices within some given time
period, other factors besides price
held constant.
4
5. Demand Side
Every market has a demand side and a
supply side.
The demand side can be represented by a
market demand curve which shows the
amount of commodity buyers would like to
purchase at different prices.
Demand curves are drawn on the
assumption that buyers’ tastes, income, the
number of consumers in the market and the
price of related commodities are unchanged.
5
6. Law of Demand
The inverse relationship between the price of
the commodity and the quantity demanded
per period is referred to as the law of
demand.
A decrease in the price of a good, all other
things held constant (ceteris paribus), will
cause an increase in the quantity demanded
of the good.
An increase in the price of a good, all other
things held constant, will cause a decrease in
the quantity demanded of the good.
6
7. Change in Quantity Demanded
7
Quantity
Price
P0
Q0
P1
Q1
An increase in price
causes a decrease in
quantity demanded.
8. Change in Quantity Demanded
8
Quantity
Price
P0
Q0
P1
Q1
A decrease in price
causes an increase in
quantity demanded.
9. Changes in Demand
Changes in price result in changes
in the quantity demanded.
This is shown as movement along the
demand curve.
Changes in nonprice determinants
result in changes in demand.
This is shown as a shift in the demand
curve.
9
10. Changes in Demand
Non-price determinants of demand
Tastes and preferences
Income
Prices of related products
Future price expectations
Number of buyers (size and
composition of Population)
Change in Fiscal Policy
Change in Weather
Advertisements
10
13. Change in Demand
Abnormal/Exceptional Demand
Note that we have been dealing with
demand for a normal good, that is, a
good that satisfies the law of demand.
However, we have exceptional cases in
real life that violate the law of demand.
13
14. Change in Demand
a) Conspicuous Consumption /Ostentation/
Veblen effect
This is the consumption that involves
unnecessary show of wealth. The
commodities in this case are bought because
they are prestigious.
When the price goes up, more of the
commodity is demanded e.g. jewels,
limousines, golden watches etc.
However, when the price falls, majority of the
society can afford the commodity and it is no
longer prestigious hence less demand.
14
15. Change in Demand
b) Inferior Goods
These are goods for which an increase in consumer
incomes results in a decrease in demand. These
are goods consumed when one’s income is low.
When income increases, instead of increasing the
consumption of such products he/she switches to
substitutes of higher quality e.g. from plastic to
leather shoes, from a 2nd hand car to a new car.
If the price of an inferior good falls, the effect is to
increase the real income of the consumer. The
consumer is likely to spend less income for the
same amount of inferior good he needed before
and he might use the extra income for other
commodities which he could not have afforded
before the price fall.
15
16. Change in Demand
c) Giffen Goods
These are goods with the characteristic that a
fall in price leads to a fall in quantity
demanded.
For instance, poor people buy inferior quality
of food like maize instead of superior quality
of food like rice. If the price of maize falls,
then poor people will prefer to buy some rice
instead of maize. In this case, when the price
of maize falls, its demand will decrease.
As the price rises, consumers cling to the
giffen goods and reduce the consumption of
the relatively more expensive commodities
16
17. Change in Demand
c) Giffen Goods Cont...
e.g. ugali is eaten with roast meat – if the
price of maize meal goes up, consumers may
buy more of it and reduce the consumption of
roast meat.
Therefore, Giffen goods are inferior goods.
All Giffen goods are inferior goods but not vice
versa.
Giffen goods have a special attribute of being
essential with no close substitutes as opposed
to many inferior goods.
17
18. Change in Demand
d) Fixed Demand
This behaviour is found in goods characterized
by addiction. The same quantity of a good or
service is demanded whatever the price level
eg medicines, cigarettes, chat etc.
Also some foodstuffs have fixed demand
because a fall in price does not mean
consuming more of that good eg salt.
18
19. Demand, Supply and Equilibrium
Every market has a demand side and a
supply side. The Supply side can be
represented by a market supply curve
which shows the amount of commodity
sellers would offer a sale at various
prices.
Supply curves are drawn on the
assumption of fixed technology and
input or resources (as such labor,
capital and land) and prices.
19
20. Law of Supply
The direct relationship between the price of
the commodity and the quantity supplied per
period is referred to as the law of supply.
A decrease in the price of a good, all other
things held constant (ceteris paribus), will
cause a decrease in the quantity supplied of
the good.
An increase in the price of a good, all other
things held constant, will cause an increase
in the quantity supplied of the good.
20
21. Change in Quantity Supplied
21
Quantity
Price
P1
Q1
P0
Q0
A decrease in price
causes a decrease in
quantity supplied.
22. Change in Quantity Supplied
22
Quantity
Price
P0
Q0
P1
Q1
An increase in price
causes an increase in
quantity supplied.
23. Changes in Supply
Nonprice determinants of supply
Costs and technology
Prices of other goods or services
offered by the seller
Future expectations
Number of sellers
Weather conditions
23
24. Changes in Supply
Change in Production Technology
- An improvement in the technology and a reduction in
input prices would make it possible to produce a
commodity at a lower cost. This indicates that sellers
would be willing to sell more of the goods at each price
Change in Input Prices
-↓ price of agriculture product, ↓ price of lamb meat, ↑
quantity supplied so rightward shift in the market
supply curve
Change in the Number of Sellers
- ↑ in no of sellers, the market supply curve shifts to
right or ↓ in no of sellers, the market supply curve shifts
to left
Prices of other goods or services offered by the seller
- i.e., BMW, Mercedes, Volkswagen (Subs. Goods)
- i.e., lamp meat and lamp leather (comp. Goods)
24
27. Abnormal/Exceptional Supply
1. Fixed/Perfectly inelastic supply
The quantity supplied is the same irrespective of
changes in price. This case may represent the supply
of perennial crops in the short-run, also supply of
land.
2. Perfectly elastic supply curve
In this case, any quantity can be supplied/sold in the
market at the given price. E.g. Unskilled labour
3. Backward-bending (labour) supply curve
This is found in the labour market. As workers
supply more and more hours of labour, their incomes
increase up to a point they do not want any more
increment. So they work less and prefer leisure. The
tax system of a country may also discourage effort in
work after a certain level of income is attained.
27
28. Market Equilibrium
Market equilibrium is determined at the
intersection of the market demand curve and
the market supply curve.
Equilibrium price: The price that equates the
quantity demanded with the quantity supplied.
Equilibrium quantity: The amount that
people are willing to buy and sellers are willing
to offer at the equilibrium price level.
The equilibrium price causes quantity
demanded to be equal to quantity supplied.
An increase or decrease in the demand or
supply curve, it defines a new equilibrium
point.
28
29. Market Equilibrium
29
Quantity
Price
P
Q
D S
If the quantity
supplied of a
commodity
exceeds the
quantity
demanded, this is
called excess
supply or surplus
between D and S
over point p.
If the quantity
demanded of a
commodity
exceeds the
quantity
supplied, this is
called excess
demand or
shortage
between D and S
below point p.
30. Market Equilibrium
Shortage: A market situation in
which the quantity demanded exceeds
the quantity supplied.
A shortage occurs at a price below the
equilibrium level.
Surplus: A market situation in which
the quantity supplied exceeds the
quantity demanded.
A surplus occurs at a price above the
equilibrium level.
30
36. The Demand Schedule and the demand curve-Example
36
How can the relationship between quantity
demanded and price be portrayed?
Demand schedule
Demand curve
37. Table 1: A demand schedule for carrots
37
Av income:$ 20000
60
Z 120
62.5
Y 100
67.5
X 80
77.5
W 60
90
V 40
110
U $ 20
Thousands ton per
months
D (quantity
demanded)
P (price per ton)
Table: 1 is a
hypothetical demand
schedule for carrots.
It shows the quantity
of carrots that would
be demanded at
various prices on the
assumption that
average household
income is fixed at $
20000 and all other
price do not change.
(i.e. if the price of
carrots were $60 per
ton, consumers
would desire to
purchase $77,500
tons of carrots per
month.
38. A demand curve for carrots
38
A second method of showing the relation between
quantity demanded and price is to draw a graph. It is a
downward slope which indicates quantity demanded
increases as price falls.
0
20
40
60
80
100
120
140
110
90
77.5
67.5
62.5
60
Quantity
Price
39. Shifts in the demand curve-Example
39
A demand curve or line is drawn on the assumption that
everything except the commodity’s own price is held
constant. A change in any of variables previously held
constant will shift the demand curve or line to a new
position. (i.e. A rise in household income has shifted the
demand curve or line to the right.
A demand curve can shift in mainly two ways: If more
bought at each price, the demand curve shift right so that
each price corresponds to a higher quantity than before. If
less is bought at each price, the demand curve shifts left so
that each price represents to a lower quantity than before.
40. Table 2: Two Alternative Demand Schedule for carrots
40
78
60
120
81.3
62.5
100
87.5
67.5
80
100.8
77.5
60
116
90
40
140
110
$ 20
Q1 (D1)
Q (D)
P
An increase in
average income will
rise the quantity
demanded at each
price. When AV
income rises from
$20000 to $ 24000
per year, quantity
demanded at price of
$60 per ton increases
from 77500 tons per
month to 100800
tons per month.
Similar rise occurs at
every other price.
Av in: $ 20000 $ 24000
41. Table 2: Two Alternative Demand Schedule for carrots
41
Put differently, A rise in av household income shifts
the demand curve for most commodities to right so
this indicates that more will be demanded at each
possible price. Ultimately, the demand schedule
relating columns P and D is replaced by one relating
columns P and D1 in the previous table. The
graphical presentation of the two functions are seen
in the following graph.
43. Other Prices
43
Earlier, we saw that the downward slope of a
commodity’s demand curve occurs because the lower
its price, the cheaper the commodity is relative to
other commodities that can satisfy the same needs or
desires. Those other commodities are called
substitutes (i.e. Carrots can be made cheap relative to
cabbage either by lowering the price of carrots or
raising the price of cabbage).
A rise in the price of a substitute for a commodity
shifts the demand curve for the commodity to the
right.
44. Other Prices
44
Another class of commodities is called complements.
These are the commodities that tend to be used
jointly with each other. Such as cars and gasoline or
electric stove and electricity.
A fall in the price of a complementary commodity
will shift a commodity’s demand curve to the right.
For example, a fall in the price of airplane trips to
Gondar will lead to a rise in the demand for Fassil
Castle ticket at Gondar even though its price is
unchanged.
45. Tastes
45
Tastes have a large effect on people’s
desired purchased. A change in tastes may
be long-lasting such as the shift from
fontain pens to ball-point pens. In this
case, a change in tastes in favor of a
commodity shifts the demand curve to the
right.
46. Distribution of Income
46
A change in the distribution of income will shift to
the right the demand curves for commodities
bought most by those gaining income. On the other
hand, it will shift to the left the demand curves for
commodities bought most by those losing income.
If, for example, the government increases the
deductions for children on the income tax and
compensates by raising basic taxes, income will be
transferred from childless persons to the large
familes. So commodity more heavily bought by
families with no child decline in demand.
47. Population
47
Population growth does not by itself create new
demand. The additional people must have
purchasing power before demand is changed.
Extra people of working age, however, usually
means extra output and if they produce, they will
earn income.
When this happens, the demand for all the
commodities purchased by the new income earners
will rise. Thus a rise in population will shift the
demand curves to the right.
48. Individual Demand function
48
The demand for a commodity arises from the
consumers’ willingness and ability to purchase the
commodity. Consumer demand theory postulates
that the quantity demanded of a commodity is a
function of / or depends on the price of the
commodity, the consumers’ income, the price of
related commodities, and the tastes of the
consumer.
49. Functional form
49
Qdx= (Px, I, Py, T)
An inverse relationship is expected between
the quantity demanded of a commodity and
its price (law of demand). That is, when the
price rises, the quantity purchased declines,
and when the price falls, the quantity sold
increases.
50. Functional form
50
Qdx= (Px, I, Py, N,T)
QdX/PX < 0
QdX/I > 0 if a good is normal
QdX/I < 0 if a good is inferior
QdX/PY > 0 if X and Y are substitutes
QdX/PY < 0 if X and Y are complements
51. Recall: Consumer Demand Theory
51
Consumer demand theory postulates that the quantity
demanded of a commodity per time period increases with a
reduction in its price, with an increase in the consumer’s
income, with an increase in the price of substitute
commodities and a reduction in the price of complementary
commodities, and with an increased taste for the commodity.
On the other hand, the quantity demanded of a commodity
declines with the opposite changes.
Consumer demand theory postulates that the quantity
demanded of a commodity is a function of / or depends on
the price of the commodity, the consumers’ income, the price
of related commodities, the number of consumers in the
market, and the tastes of the consumer.
52. Relating Concepts
52
The increase in Qx when Px falls occurs because in
consumption, the individual consumer substitutes commodity x
for other commodities which are now relatively expensive. This
is called the substitution effect.
In addition, when Px falls, a consumer can purchase more of x
with a given amount of money (i.e., the consumer’s real income
increases). This is called the income effect.
The movement along a given demand curve resulting from a
change in the commodity price is referred to as a change in the
quantity demanded, while a shift in the demand curve resulting
from a change in any of the factors that affect demand, other
than the commodity’s price, is referred to as a change in
demand.
53. Individual and Market Demand Curve Example
Horizontal Summation: From Individual to Market Demand
53
54. Individual and Market Demand Curve Example
54
Given the following data: Px=$4 and Qdx=4 and
Qdx=400, while at Px=$3, Qdx=6 and Qdx=600,
construct the relevant individuals and market curves
Market
0
2
4
6
8
0 200 400 600 800 1000 1200
Qdx
Px
Individuals
0
2
4
6
8
0 2 4 6 8 10 12
Qdx
Px
55. Price Elasticity of Demand
/
/
P
Q Q Q P
E
P P P Q
55
The price elasticity of demand (Ep) is
measured by the percentage change
in the quantity demanded of the
commodity divided by the percentage
change in commodity’s price, holding
constant all other variables in the
demand function.
56. Price Elasticity of Demand
/
/
P
Q Q Q P
E
P P P Q
1
P
P
E a
Q
56
Point Definition
Or Elasticity at
given point
Linear Function
57. Price Elasticity of Demand
2 1 2 1
2 1 2 1
P
Q Q P P
E
P P Q Q
57
Arc Definition
58. Price Elasticity of Demand
58
The price elasticity of demand (Ep)
mainly depends on the following
factors:
a) Existence of substitutes effect
e.g. Oil product cannot easily be
substituted-demand of oil product is
inelastic.
e.g. The demand for taxi services is
expected to be elastic. Instead, You may
use bus, train etc..
59. Price Elasticity of Demand
59
b) The portion of money allocated in
the budget
o A change in the price of a product do not
influence consumers’ absolute budget
rather their relative budget.
e.g. An increase in the price of black
pepper will not decrease the demand of
consumers on black pepper due to their
small portion of money allocated in their
budget.
60. Price Elasticity of Demand
60
c) The time period after changes in price
o As long as time period gets longer, the
demand becomes more elastic.
e.g. When oil prices increase, consumers
cannot find a solution to change the current
system to another alternative system in a
short run period. This shows us demand for oil
will remain same to a certain extent and an
increase or a decrease in demand will be
dependent on time.
62. Price Elasticity of Demand- Example
Market
A
B
C
D
E
F G
0
2
4
6
8
0 200 400 600 800 1000 1200
Qdx
Px
62
Find Ep at point A,
B, C and G
Ep=(ΔQ/ ΔP)
(P/Q)
At point A, Ep=(0-
200/ 6-5) (6/0)
Ep=-200 (6/0)= -
indefinite
At point B, Ep=
(200-400/5-4)
(5/200)=-5
At point C,
Ep=(400-600/4-3)
(4/400)=-2
At point G,
Ep=(-200)(0/1200)=0
63. Price Elasticity of Demand- Example
63
Find Ep at point A, B, C and G
Ep=(ΔQ/ ΔP) (P/Q)
At point A, Ep=(-200/ 6-5) (6/0)
Ep=-200 (6/0)= - indefinite
At point B, Ep= (200-400/5-4)
(5/200)=-5
At point C, Ep=(400-600/4-3)
(4/400)=-2
At point G, Ep=(-200) (0/1200)=0
64. Arc Elasticity of Demand- Example
Market
A
B
C
D
E
F G
0
2
4
6
8
0 200 400 600 800 1000 1200
Qdx
Px
64
Find arc Ep between points B and C
Ep=(Q2-Q1)/(P2-P1) (P2+P1)(Q2+Q1)
Ep= (400-200)/(4-5) (4+5)/(400+200)
Ep=-3
Absolute value of Ep
Greater than 1- elastic
Equals 1- unit elastic
Less than 1- inelastic
65. MR and TR based on Elasticity- Example
65
-3
1,000
-1/5
1,000
1
-5
0
0
1,200
0
-1
1,600
-1/2
800
2
0
1,800
-1
600
3
3
1,600
-2
400
4
5
1,000
-5
200
5
-
$ 0
-indefinite
0
$ 6
(5)
(4)
(3)
(2)
(1)
MR=dTR/dQ
TR=P.Q
Ep
Q
P
66. MR and TR based on Elasticity- Example
66
Based on the previous table:
P decreases TR increases when Ep is elastic
TR max or unchanged when Ep is unitary
elastic
TR decreases when Ep is inelastic
69. Income Elasticity of Demand
/
/
I
Q Q Q I
E
I I I Q
3
I
I
E a
Q
69
Point Definition
Linear Function
70. Income Elasticity of Demand
2 1 2 1
2 1 2 1
I
Q Q I I
E
I I Q Q
0
I
E
70
Arc Definition
Normal Good Inferior Good
Luxuries Good
Necessities Good
0
I
E
1
I
E 1
I
0 < E <
71. Cross-Price Elasticity of Demand
/
/
X X X Y
XY
Y Y Y X
Q Q Q P
E
P P P Q
4
Y
XY
X
P
E a
Q
71
Point Definition
Linear Function
72. Cross-Price Elasticity of Demand
2 1 2 1
2 1 2 1
X X Y Y
XY
Y Y X X
Q Q P P
E
P P Q Q
0
XY
E 0
XY
E
72
Arc Definition
Substitutes Complements
XY
E 0
No relationship
73. Price Elasticity of Demand- Example
73
Suppose the demand curve for a certain good is
represented by the equation ,
Where is measured in 000s of units. Calculate
price elasticity of demand at a price of 3 Birr (point
elasticity).
2
: 60 15
d
Q P P
d
Q
74. Income, Cross and Arc Elasticises- Example
Market
A
B
C
D
E
F G
0
2
4
6
8
0 200 400 600 800 1000 1200
Qdx
Px
74
Find arc EI between two levels of income i.e I=$10000
and I=$ 11000 when the demand for commodity X is
400.
EI=(Q2-Q1)/(I2-I1) (I2+I1)(Q2+Q1)
EI= (600-400)/(11-10) (11+10)/(600+400)
EI= 4.2
Thus commodity x is normal and luxury.
Find arc Exy between two levels of price y i.e Py=$ 1
and Py =$ 2 when the demand for commodity X is 400.
Exy=(Q2-Q1)/(P2-P1) (P2+P1)(Q2+Q1)
Exy= (600-400)/(2-1) (2+1)/(600+400)
Exy= 0.6
Thus commodity y is substitute compared to
commodity X
0
XY
E
Substitutes
75. Using Elasticises In Managerial Decision Making-Example
75
A firm selling coffee brand X and estimated
relevant demand regression as follows:
Qx=1.5-3.0 Px+0.8 I+2.0 Py-0.6 Ps+1.2 A
Qx is sales of coffee brand X, I is disposable
income, Py is price of competitive coffee brand,
Ps is price of sugar and A is advertising
expenditures for coffee brand X.
Suppose: Px=$2, I=$2.5, Py=$1.80, Ps=$0.50
and A=$1
76. Using Elasticities In Managerial Decision Making Example
4
Y
XY
X
P
E a
Q
76
Calculate Qx and the elasticities of sales with respect to
each variable in the relevant demand function
Qx=1.5-3.0 Px+0.8 I+2.0 Py-0.6 Ps+1.2 A
Qx=1.5-3.0(2)+0.8(2.5)+2(1.8)-0.6(0.5)…1.2(1)
=2mn pounds coffee
Calculate the elasticities of the demand for coffee brand X
Ep=-3(2/2)=-3,Ei=0.8(2.5/2)=1, Exy=2(1.8/2)
Exs=-0.6(0.5/2)=-0.15, Ea=1.2(1/2)=0.6
RECALL the Formulae
3
I
I
E a
Q
1
P
P
E a
Q
77. Using Elasticises In Managerial Decision Making-Example
77
Next year, the firm would like to increase Px
by 5%, A by 12%, I by 4%, and Py 7%
whereas Ps fall by 8%.
Determine sales of coffee brand X in the
next year.
Qxx=Qx+Qx(DPx/Px)Ep……+Qx(DA/A)Ea
Qxx=2+2(5%)(-3)+2(4%)(1)+2(7%)(1.8)
+2(-8%)(-0.15)+2(12%)(0.6)
Qxx=2.2 or 2,200,000 pounds
79. How do you interpret?
79
1 percent increase in price leads to a
reduction in the quantity demanded of
clothing of 0f 0.90 percent in the short-run
and 2.90 percent in the long-run.
Price elasticity of demand for gasoline is
three times higher in the long-run.
Both elasticities are very small.
It seems that people cannot find suitable
substitutes for gasoline.
81. How do you interpret?
81
Income elesticity of demand is 2.59 for wine
and -0.36 for flour. This means that a 1
percent increase in consumers’ income leads
to a 2.59 percent increase in expenditure on
wine but to a 0.36 percent reduction in
expenditures on flour.
Thus wine is a luxury while flour is a inferior
good.
Electricity is also a luxury and so European
cars, Asian cars, and domestic cars in the U.S.
While cigarettes, beer, chicken and pork are
necessities. Beef is a borderline commodity
83. How do you interpret?
83
The cross price elesticity of demand of margarine
with respect to the price of butter is 1.53
percent. This means that a 1 percent increase in
the price of butter leads to a 1.53 percent
increase in the demand for margarine.
Thus margarine and butter are substitutes in the
U.S.
The cross price elesticity of demand of cereals
(e.g. Bread) with respect to the price of fresh
fish is -0.87 percent. This means that a 1
percent increase in the price of cereals leads to a
0.87 percent reduction in the demand for fresh
fish.
Thus cereal and fresh fish are complements.
85. How do you interpret?
85
The price elesticity of demand of beer is -0.23 percent.
This means that a 10 percent increase in the price of beer
leads to a 2.3 percent reduction in the quantity of beer
demanded and thus an increase in consumer expenditures
on beer.
The price elesticity of wine is -0.40 and spirits is -0.25 so
that an increase in their price also leads consumers to
demand a smaller quantity of wine and spirits, but also to
spend more on the alcoholic beverages.
The cross price elesticity of demand for beer with respect
to the price of wine is 0.31 and with respect to spirits is
0.15. This means that wine and spirits are substitutes for
beer, with wine being better substitute.
86. How do you interpret?
86
Thus a 10 percent increase in the price of wine will
lead to a 3.1 percent increase in demand for beer, while
a 10 percent increase in the price of spirits leads to a
1.5 percent increase in demand for beer.
a 10 percent increase in consumer income will lead to
a 0.9 percent reduction in the demand for beer, but
50.3 percent increase in demand for wine, while a 12.1
percent increase in demand for spirits.
Thus beer can be considered an inferior good, while
wine and spirits can be regarded as a luxury goods.
Wine seems much stronger luxury than spirits.
87. The important steps by using Elasticities
The analysis of the forces or variables that affect on
demand and reliable estimates of their quantitative effect
on sales (elasticities) are essential in order for firm to make
best operating decisions in shor-run and to plan for its
growth in the long-run.
The firms can use the elasticities of demand of the
variables under their controls to find out best policies as
well as to maximize their profits.
If the demand for the firm’s product is price inelastic, the
firm will want to increase the product price since that would
increase its total revenue and reduce its total cost.
If the elasticity of the firm’s sales wrt the variable beyond
its control or If the cross-price elasticity of demand for the
firm’s product is very high, the firm will need to respond
quickly to a competitor’s price reduction otherwise losing a
great deal of its sales.
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88. The important steps by using Elasticities
The size of the price elasticity of demand is larger,
the closer and the greater is the number of available
substitutes for the commodity. For example, sugar is
more price elastic than table salt (e.g. honey)
In general, the greater is its price elasticity of
demand, the greater will be the number of
substitutes
For a given price change, the quantity response is
likely to be much larger in the long run than short
run so the price elasticity of demand is likely to be
much greater in the long run than short run .
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