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Supply and Demand
Susan L. Brewer
EGT1
October 22, 2013

Supply and Demand
A. Discuss elasticity of demand as it pertains to elastic, unit, and inelastic demand.
Elasticity of demand refers to the degree to which demand for a good or service varies with its price. Usually if there is a drop in prices sales will increase and if the price of something rises there will be a decrease in sales. Items that show elasticity tend to be non-essential items such as cars and appliances. Inelasticity of demand means that items do not sell significantly more or less if there is a change in price. Items that tend to be inelastic include necessities such as food, clothing, and medicine. Some items are perfectly elastic. This means there is no change in the amount of product sold due to a price change. These are generally items we cannot live without such as gas or electricity. Unit elastic means that elasticity is one. When the price of an item changes, the quantity demanded will change by the same proportion ("Businessdictionary.com", 2011).

B. Discuss cross price elasticity as it pertains to substitute goods and complementary goods.
Cross-price elasticity measures how the demand for one item changes when the price of another item increases or decreases. If the two items are substitutes and the price of one item increases, we would expect sales of that item to decrease and sales of the substitute item would increase. An example of substitute goods would be beef and pork. If the price of beef rises and the price of pork is less than the price of beef, consumers will begin to purchase more pork ("About.com Economics", 2012).
When the items are complementary, if the price of one item increases, the demand for both items will decrease. An example of this is hot dogs and hot dog buns. If the price of hot dogs increases and demand goes down, then the demand

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