In the previous issue of ECONOMIC REVIEW (Vol. 30, No. 1), I discussed the demand and supply model, and the way in which equilibrium in a market can be achieved. The model is applicable to a wide variety of situations, and in particular can be used to analyse the impact of changes in market conditions on price and quantity traded. A key concept in this context is that of elasticity and this will be a central focus of the discussion here.
In the article in the previous issue, we saw how the market for pizza can be expected to end up in equilibrium, with the price settling at such a level that the quantity of pizza demanded is matched by the quantity supplied. But what if there is a change in market conditions — how will the equilibrium be affected?
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