Answer to Question #259324 in Microeconomics for Nish

Question

Briefly discuss the factors that determine demand for a commodity? Why does supply and demand behave differently in short run and long run for oxygen cylinder during this pendamic, explain with the concept of elasticity?

Answer 1

A) There are several factors determining the demand of a commodity

I) Consumers' tastes and preferences- Demand is greater for a good which is more preferred by consumers. On the contrary, when goods are out of fashion and no longer meet the tastes and preference of consumers, their demand decreases.

ii) People's income - less of goods are demanded when the incomes of the people drop. Eventually, this leads to a downward shift in the demand curve. Contrarily, more is demanded with high income thus, a positive shift in the demand curve and the economy as well.

iii) Number of consumers present in the Market- The greater the number of consumers of a good in the market,the greater the demand for it. The lesser the number of consumers of a good, the lower the demand.

iv) Expectations of consumers regarding future prices- if they expect that the price of commodity would rise in the future,then they would currently demand more. If they expect a drop of prices in the future, they would ultimately demand less.

v) Advertisement- Successful advertisements often provoke a rise in the demand of the products.

vi)Price change in the related goods- Reduction in the price of a substitute good leads to the fall in demand of a product while a rise in the price of that substitute good causes demand to rise.

B)

Demand tends to be more inelastic in the short run due to lack of alternatives. So has been the case for the oxygen cylinder which has been considered an inelastic product throughout this pandemic. Increase or decrease in prices has not affected its demand because many lives have been oxygen dependent. Therefore, people would pay high amounts for their survival with it's minimal supply.However, in the long run, the demand for the oxygen will be more elastic as people continue embracing control measures to curb and control the pandemic therefore the supply will increase in the long run.