|← Impact on International Trade||Shares Warrant-Various Types →|
Elasticity of demand measures the proportion in which quantity demanded responds to change in determinants of demand. The more the number of products demanded changes, due to a variation in price, the more this implies demand that is more elastic. Therefore, price increase translates to a more than balanced decline in capacity demanded, especially, for inferior goods. In this case, the price of coffee has increased significantly, resulting in a more proportionate decline, in consumption of coffee.
Availability of more substitutes affects the elasticity of demand for a commodity. As such, demand will be highly elastic when there are increased substitutes. Substitutes reduce demand proportion of the commodity, and when price increases for a product, for instance, coffee, consumers will demand more of tea as a replacement (Investor, n.d.).
Elasticity of time is another factor that makes affects demand elasticity. In this case, consumption of coffee, in the long run, can be postponed to another day in case they are beyond the reach of consumers. Consumers will take other products in the meantime, because they cannot afford continuous intake of coffee.
Elasticity of price levels is another factor that renders an increased elastic demand. If the changes in price persist for a long time, demand will be more elastic. As such, changes in price that are regarded to be high, by consumers, will also affect demand proportionately.
The article captures the decline in U.S. coffee demand in relation to price increase due to supply concerns, as well as inflation hedging. As such, the country hopes Chinese demand, which is insatiable, will rescue the decline by creating effective demand. It relates to some of the factors identified in the week such as lack of demand and increase in price. This makes demand of a product increasingly elastic.