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Economics Essay> Q. Why do prices of some goods fluctuate more than others? A. It is a well known fact, that various prices of goods fluctuate at various levels.
The products which fluctuate most invoice are often held to be necessities, but what is that makes these changes, and which factors influence them. Before trying to conclude which goods fluctuate most price-wise and why, it seems sensible to ask which group these products belong. As mentioned necessities are known to be inelastic, but some a lot of products with no close substitutes like for example motor cars, petrol, tobacco and alcoholic drinks. Now what do these goods have in common, one might ask.
Well, for starters they all have a very inelastic demand. In these situations we get the graphics the one below (1. A). From 1. A it is obvious that if quantity by some reason decreases from Q 1 to Q 2 this gives a quite high increase in price from P 1 to P 2. From this it can be concluded that small change in quantity of a product which has low elasticity, results in high changes in price, i.
e. a lot of price fluctuations. On the other hand we have products whos prices rarely fluctuate as for example luxuries. Here again it is obvious that arrange in quantity demanded will result in only a little change invoice. This is displayed in the graph 1.
B below. Here we can seether quantity changes from Q 1 to Q 2 resulting on the change P 1 toP 2, which here concludes that the products like luxuries have highly elastic demand, resulting in only small price fluctuations. From the above I can conclude that the reason why some goods fluctuate more price wise than others is due to the elasticity ofthe examined good.
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