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CONCLUSION

Elasticity refers to the reaction or response of the consumers to change in prices of goods and services. Elasticity of demand also may depend on the relative change in quantity and price. Buyers may tend to reduce their purchases as price increases, and tend to increase their purchases when price decreases. The change in price is not the only factor that may change the reaction of consumers. The nature of the product (similarity to what he uses) and the particular needs of the consumer (whether important or not) may also affect the change in the reaction or response of consumer. Demand may be elastic or inelastic. Demand is likely to be elastic when: want is not urgent, close substitutes are available, goods is durable or repairable, goods has multiple uses. On the other hand, demand is likely to be inelastic when: want is urgent, good substitutes are unavailable, wanted jointly with some complementary item. (Anna C. Bocar, 2008)

The price elasticity of supply reflects the law of supply relation between price and quantity. An elastic supply means that the quantity supplied is relatively responsive to changes in price. An inelastic supply means that the quantity supplied is not very responsive to changes in price.

According to the law of supply, higher supply prices are related to larger quantities supplied. As such, the numerator and denominator of this formula always have the same signs--if one is positive, the other is also positive. If the supply price increases and the percentage change in price is positive, then the quantity supplied increases and the percentage change in quantity supplied is also positive. When calculated, the price elasticity of supply, therefore, is always positive. There are four main factors that influence the PES: Spare production capacity, Stocks of finished products and components, The ease and cost of factor substitution, Time period involved in the production process. (Pepijn van Eck, 2009)