PRICE ELASITCITY AND INCOME ELASTICITY

The responsiveness of consumers to a price change is measured by a product's price elasticity of demand.

The concept of price elasticity also applies to supply. It is defined as percentage change in quantity supplied for percentage change in quantity demanded.

THE SHORTRUN:

It is a period of time too short to change plant capacity but long enough to use fixed plant more or less intensively. In the short run, the farmer's plant is fixed but he does have time to cultivate vegetables more intensively by applying more labour and more fertilisers, pesticides to the crop.

 

THE LONGRUN:

It is a time period long enough for firms to adjust their plant sizes and for new firms to enter the industry. In the vegetable industry the farmer will have the time to aquire additional land and buy more machinery and equipment. 

Income elasticity of demand measures the degree to which consumers respond to a change in their respond to a change in their incomes by buying more or less if particular product. It is defined as a percentage change in quantity demanded for the percentage changing income. 

NORMAL GOODS:

Goods that are demanded as income rises.

INFERIOR GOODS:

Consumers decrease the purchases as their income raise.