An Application Of The Concepts of Demand, Supply And Elasticity

Demand and supply are the two of the most important concepts in economics. It is common knowledge that the price of a good is determined by the interaction of the demand and supply curves. An economics tutor Singapore who provides economics tuition to pre-university students is able to provide you a detailed explanation of the analysis of demand and supply. When there is a change in demand and supply, the change in price and quantity will be determined by the steepness of the supply curve and the demand curve respectively, which is the price elasticity of supply (PES) and the price elasticity of demand (PED).

Demand and Price Elasticity of Supply

You should have learned from your economics tutor Singapore that price and quantity demanded have an inverse relationship. This relationship can be witnessed in our everyday lives. When the price of milk rises, we will buy less. However, as milk is a necessity, we will buy a little less, not a lot less. This can be explained with the price elasticity of demand. Necessities like food, clothes, transport and housing have a price elasticity of demand of less than one. We need to buy food to feed ourselves and our family no matter what the price is. We need to buy clothes to keep us warm no matter what the price is. This is also true for transport and housing as these are things we cannot live without.

Assuming now North Korea is planning to go into war with South Korea. Typically an event like this will cause the prices of necessities in both countries to rise. When consumers expect the milk price to rise, they will buy more. This will result in an increase in demand. Given that supply cannot be increased immediately, price will rise due to a shortage. Quantity will rise as a result too. Would the increase in demand result in an increase in supply or a change in quantity supplied? Let me elaborate a little on a common misconception that even an economics tutor Singapore who provides economics tuition to university students may fail to explain to their students clearly.

Students often mix up a change in supply and a change in quantity supplied. A change in demand will never result in a change in supply, but a change in quantity supplied. The converse is also true. A change in supply will never result in a change in demand, but a change in quantity demanded.

The supply of milk is likely to be price elastic as the production time of milk is likely to be short since milk is mass produced on automated production line. Therefore, the change in demand for milk is likely to cause the price to rise by a small extent and quantity to rise by a large extent. You may take economics tuition from an experienced economics tutor Singapore to learn the relationship demand and price elasticity of supply.

Supply and Price Elasticity of Demand

The direct relationship of price and quantity supplied can be witnessed in our everyday lives too. When the price of milk rises, firms will produce more. In the event of a war between North Korea and South Korea, a decrease in supply is likely to happen due to a rise in production cost which typically occurs in times of war. You can learn the reasons for the rise in production cost in times of war from a good economics tutor Singapore. A decrease in supply of milk will lead to a rise in milk price and fall in quantity. As the demand for milk is likely to be price inelastic due to the high degree of necessity, price is likely to rise by a large extent and quantity is likely to fall by a small extent.

In conclusion, in the event of a war between North Korea and South Korea, price of milk will rise and quantity of milk will rise too as increase in demand will lead to a rise in quantity by a large extent while the decrease in supply will lead to a fall in quantity by a small extent. Therefore, the overall effect on quantity is likely to be positive. You can consult your economics tutor Singapore for a more detailed analysis.

Linda Geng

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