Demand and Supply Microeconomics Analysing

Question: Discuss about the Demand and Supply Microeconomics Analysing. Answer: Introduction Demand and supply are the two major aspects of microeconomics that helps in analysing the change in the market conditions of a particular product. The topic that has been chosen for this report is elasticity of demand. Elasticity of demand helps in analysing the effective change of the quantity demanded of a particular product with the effective change in its price (Rader, 2014). In this report, the oil industry of Canada has been taken into consideration. Two articles have been selected in this aspect that would provide with the necessary information regarding the change in the quantity demanded of the product due to the change in its price. According to the first article posted by the Huffingtonpost Canada, in 1st December, 2015, it could be stated that as stated by the CEO of Canada mortgage and housing corp., there would be a sharp fall in the housing prices of Canada if the oil prices fell to $35 per barrel and stayed there for five years. With the fall in the prices of oil, there would be drop in the housing prices by 26% and a rise in the rate of unemployment in the economy by 12%. According to Evan Siddall, unemployment rate is a better indicator than interest rates of where the housing market is headed, because job losses can lead people to sell their homes or default on their payments ("$35 Oil Would Cause House-Price Collapse: CMHC", 2017). Elasticity of demand measures the effectiveness of the change in the quantity demanded of the product with the change in its price. With the fall in the [rice of oil, there would be a decrease in the profit earned by the businesses. This would aim at reducing the employment conditions prevailing in the economy. People would be earning lesser in the economy than it would have before. Moreover, the unemployment rate of the economy would increase considerably. As the income of the people would fall, there would be reduction in the purchasing power of the economy, thereby resulting into a fall in the process of certain products. Hence, it could be stated that houses being considered as relatively more elastic product, would rather result into a fall in the prices, in order to generate the demand for the goods. Goods that are relatively elastic in nature has an elasticity rate of more than one. In figure 1, it could be stated that the demand curve faced by the housing market is fatter in nature, thereby denoting its slop to be more than 1. This indicates relatively elastic demand for houses in the economy. The proportion of reduction in the price of the product from P1 to P2 is lesser than the proportion of increase in the quantity from Q1 to Q2. The second article has been posted by ecofix word press, on 7th may, 2015. This article deals with the elasticity of demand of air travel. According to this article, the demand for an individual to travel by air depends upon the price of the travel and the income of the consumer. Both price elasticity and income elasticity is taken into consideration. While the price elasticity measures the effective change in the quantity demanded due to the change in price, income elasticity measures the effective change in the demand of the product due to change in the income of the consumer (Williamson, 2017). In terms of price and income elasticity, a meta-study summarised 254 different estimates from 21 published studies and found an overall median price elasticity of -1.1, indicating that demand for air travel is relatively sensitive to price changes ("Elasticity of Demand for Air Travel", 2017). According to this article, purpose of travel plays a major role in travelling by air. When the consumer has to conduct a business travel, it would be relatively inelastic that the one who would be travelling for luxury and tourism. The effectiveness in the change in demand for air travel would be much lesser for business travels than that of luxury tour travel due to the change in its price (Acemoglu, Laibson List, 2017). In figure 2, there are two diagrams. First diagram deals with the relatively elastic demand curve of the individuals who travel for business and the second diagram deals with the relatively inelastic demand curve for the individuals who travel for luxury tours. For business travels, a rise in the price of air travel shows a considerably smaller effect on the change in quantity of the products than that of the luxury travel consumers. The elasticity of demand for business travel is lesser than one and that for luxury travel is more than one. This results in a steeper and flatter demand curves respectively. Conclusion On analysing the two articles, it could be stated that the demand for a particular product is depended upon the price of the product. Moreover, it is also dependent upon the elasticity of the quantity demanded. Reference $35 Oil Would Cause House-Price Collapse: CMHC. (2017). The Huffington Post. Retrieved 1 April 2017, from https://www.huffingtonpost.ca/2015/12/01/house-prices-canada-oil-prices_n_8692340.html Acemoglu, D., Laibson, D., List, J. (2017).Microeconomics. Pearson. Elasticity of Demand for Air Travel. (2017). econfix. Retrieved 1 April 2017, from https://econfix.wordpress.com/2015/05/07/elasticity-of-demand-for-air-travel/ Rader, T. (2014).Theory of microeconomics. Academic Press. Williamson, S. D. (2017).Macroeconomics. Pearson.