LITERARY DEVICES

Copyright © 2007 by Jay Braiman

www.mrbraiman.com

Literary devices refers to specific aspects of literature, in the sense of its

universal function as an art form which expresses ideas through language,
which we can recognize, identify, interpret and/or analyze. Literary devices
collectively comprise the art form’s components; the means by which
authors create meaning through language, and by which readers gain
understanding of and appreciation for their works. They also provide a
conceptual framework for comparing individual literary works to others,
both within and across genres. Both literary elements and literary
techniques can rightly be called literary devices.

Literary elements refers to particular identifiable characteristics of a whole

text. They are not “used,” per se, by authors; they represent the elements of
storytelling which are common to all literary and narrative forms. For
example, every story has a theme, every story has a setting, every story
has a conflict, every story is written from a particular point-of-view, etc.
In order to be discussed legitimately as part of a textual analysis, literary
elements must be specifically identified for that particular text.

Literary techniques refers to any specific, deliberate constructions or

choices of language which an author uses to convey meaning in a
particular way. An author’s use of a literary technique usually occurs with
a single word or phrase, or a particular group of words or phrases, at one
single point in a text. Unlike literary elements, literary techniques are not
necessarily present in every text; they represent deliberate, conscious
choices by individual authors.

“Literary terms” refers to the words themselves with which we identify and
designate literary elements and techniques. They are not found in literature
and they are not “used” by authors.

Allegory: Where every aspect of a story is representative, usually symbolic, of

something else, usually a larger abstract concept or important
historical/geopolitical event.

Lord of the Flies provides a compelling allegory of human nature,

illustrating the three sides of the psyche through its sharply-defined main
characters.
Alliteration: The repetition of consonant sounds within close proximity, usually
in consecutive words within the same sentence or line.

Antagonist: Counterpart to the main character and source of a story’s main

conflict. The person may not be “bad” or “evil” by any conventional moral
standard, but he/she opposes the protagonist in a significant way.
(Although it is technically a literary element, the term is only useful for
identification, as part of a discussion or analysis of character; it cannot
generally be analyzed by itself.)
Anthropomorphism: Where animals or inanimate objects are portrayed in a
story as people, such as by walking, talking, or being given arms, legs,
facial features, human locomotion or other anthropoid form. (This
technique is often incorrectly called personification.)

The King and Queen of Hearts and their playing-card courtiers comprise
only one example of Carroll’s extensive use of anthropomorphism in
Alice’s Adventures in Wonderland.

Blank verse: Non-rhyming poetry, usually written in iambic pentameter.

Most of Shakespeare’s dialogue is written in blank verse, though it does

occasionally rhyme.

Character: The people who inhabit and take part in a story. When discussing
character, as distinct from characterization, look to the essential function
of the character, or of all the characters as a group, in the story as a whole.

Rather than focus on one particular character, Lord assembles a series of

brief vignettes and anecdotes involving multiple characters, in order to
give the reader the broadest possible spectrum of human behavior.

Golding uses his main characters to represent the different parts of the
human psyche, to illustrate mankind’s internal struggle between desire,
intellect, and conscience.

Characterization: The author’s means of conveying to the reader a character’s

personality, life history, values, physical attributes, etc. Also refers
directly to a description thereof.

Atticus is characterized as an almost impossibly virtuous man, always

doing what is right and imparting impeccable moral values to his
children.

Climax: The turning point in a story, at which the end result becomes inevitable,
usually where something suddenly goes terribly wrong; the “dramatic high
point” of a story. (Although it is technically a literary element, the term is
only useful for identification, as part of a discussion or analysis of
structure; it cannot generally be analyzed by itself.)

The story reaches its climax in Act III, when Mercutio and Tybalt are
killed and Romeo is banished from Verona.

Conflict: A struggle between opposing forces which is the driving force of a

story. The outcome of any story provides a resolution of the conflict(s);
this is what keeps the reader reading. Conflicts can exist between
 individual characters, between groups of characters, between a character
and society, etc., and can also be purely abstract (i.e., conflicting ideas).

The conflict between the Montagues and Capulets causes Romeo and
Juliet to behave irrationally once they fall in love.

Jack’s priorities are in conflict with those of Ralph and Piggy, which
causes him to break away from the group.

Man-versus-nature is an important conflict in The Old Man and the Sea.

Context: Conditions, including facts, social/historical background, time and

place, etc., surrounding a given situation.

Madame Defarge’s actions seem almost reasonable in the context of the

Revolution.

Creative license: Exaggeration or alteration of objective facts or reality, for the

purpose of enhancing meaning in a fictional context.

Orwell took some creative license with the historical events of the Russian
Revolution, in order to clarify the ideological conflicts.

Dialogue: Where characters speak to one another; may often be used to substitute
for exposition.

Since there is so little stage direction in Shakespeare, many of the

characters’ thoughts and actions are revealed through dialogue.

Dramatic irony: Where the audience or reader is aware of something important,

of which the characters in the story are not aware.

Macbeth responds with disbelief when the weird sisters call him Thane of
Cawdor; ironically, unbeknownst to him, he had been granted that title by
king Duncan in the previous scene.

Exposition: Where an author interrupts a story in order to explain something,

usually to provide important background information.

The first chapter consists mostly of exposition, running down the family’s
history and describing their living conditions.

Figurative language: Any use of language where the intended meaning differs
from the actual literal meaning of the words themselves. There are many
techniques which can rightly be called figurative language, including
 metaphor, simile, hyperbole, personification, onomatopoeia, verbal irony,
and oxymoron. (Related: figure of speech)

The poet makes extensive use of figurative language, presenting the

speaker’s feelings as colors, sounds and flavors.

Foil: A character who is meant to represent characteristics, values, ideas, etc.

which are directly and diametrically opposed to those of another character,
usually the protagonist. (Although it is technically a literary element, the
term is only useful for identification, as part of a discussion or analysis of
character; it cannot generally be analyzed by itself.)

The noble, virtuous father Macduff provides an ideal foil for the
villainous, childless Macbeth.

Foreshadowing: Where future events in a story, or perhaps the outcome, are

suggested by the author before they happen. Foreshadowing can take
many forms and be accomplished in many ways, with varying degrees of
subtlety. However, if the outcome is deliberately and explicitly revealed
early in a story (such as by the use of a narrator or flashback structure),
such information does not constitute foreshadowing.

Willy’s concern for his car foreshadows his eventual means of suicide.

Hyperbole: A description which exaggerates, usually employing extremes and/or

superlatives to convey a positive or negative attribute; “hype.”

The author uses hyperbole to describe Mr. Smith, calling him “the
greatest human being ever to walk the earth.”

Iambic pentameter: A poetic meter wherein each line contains ten syllables, as
five repetitions of a two-syllable pattern in which the pronunciation
emphasis is on the second syllable.

Shakespeare wrote most of his dialogue in iambic pentameter, often

having to adjust the order and nature of words to fit the syllable pattern,
thus endowing the language with even greater meaning.

Imagery: Language which describes something in detail, using words to

substitute for and create sensory stimulation, including visual imagery and
sound imagery. Also refers to specific and recurring types of images, such
as food imagery and nature imagery. (Not all descriptions can rightly be
called imagery; the key is the appeal to and stimulation of specific senses,
usually visual. It is often advisable to specify the type of imagery being
used, and consider the significance of the images themselves, to
distinguish imagery from mere description.)
 The author’s use of visual imagery is impressive; the reader is able to see
the island in all its lush, colorful splendor by reading Golding’s detailed
descriptions.

Irony (a.k.a. Situational irony): Where an event occurs which is unexpected, in

the sense that it is somehow in absurd or mocking opposition to what
would be expected or appropriate. Mere coincidence is generally not
ironic; neither is mere surprise, nor are any random or arbitrary
occurrences. (Note: Most of the situations in the Alanis Morissette song
are not ironic at all, which may actually make the song ironic in itself.)
See also Dramatic irony; Verbal irony.

Jem and Scout are saved by Boo Radley, who had ironically been an
object of fear and suspicion to them at the beginning of the novel.

Metaphor: A direct relationship where one thing or idea substitutes for another.

Shakespeare often uses light as a metaphor for Juliet; Romeo refers to her
as the sun, as “a rich jewel in an Ethiop’s ear,” and as a solitary dove
among crows.

Mood: The atmosphere or emotional condition created by the piece, within the
setting. Mood refers to the general sense or feeling which the reader is
supposed to get from the text; it does not, as a literary element, refer to the
author’s or characters’ state of mind. (Note that mood is a literary element,
not a technique; the mood must therefore be described or identified. It
would be incorrect to simply state, “The author uses mood.”)

The mood of Macbeth is dark, murky and mysterious, creating a sense of

fear and uncertainty.

Motif: A recurring important idea or image. A motif differs from a theme in that
it can be expressed as a single word or fragmentary phrase, while a theme
usually must be expressed as a complete sentence.

Blood is an important motif in A Tale of Two Cities, appearing numerous

times throughout the novel.

Onomatopoeia: Where sounds are spelled out as words; or, when words
describing sounds actually sound like the sounds they describe.

Remarque uses onomatopoeia to suggest the dying soldier’s agony, his

last gasp described as a “gurgling rattle.”

Oxymoron: A contradiction in terms.

 Romeo describes love using several oxymorons, such as “cold fire,”
“feather of lead” and “sick health,” to suggest its contradictory nature.

Paradox: Where a situation is created which cannot possibly exist, because

different elements of it cancel each other out.

In 1984, “doublethink” refers to the paradox where history is changed,

and then claimed to have never been changed.

A Tale of Two Cities opens with the famous paradox, “It was the best of
times, it was the worst of times.”

Parallelism: Use of similar or identical language, structures, events or ideas in

different parts of a text.

Hobbs’ final strikeout parallels the Whammer’s striking out against him
at the beginning of the novel.

Personification (I) Where inanimate objects or abstract concepts are seemingly

endowed with human self-awareness; where human thoughts, actions,
perceptions and emotions are directly attributed to inanimate objects or
abstract ideas. (Not to be confused with anthropomorphism.)

Malamud personifies Hobbs’ bat, giving it a name, Wonderboy, and

referring to it using personal pronouns; for example, “he went hungry”
during Hobbs’ batting slump.

Personification (II) Where an abstract concept, such as a particular human

behavior or a force of nature, is represented as a person.

The Greeks personified natural forces as gods; for example, the god
Poseidon was the personification of the sea and its power over man.

Plot: Sequence of events in a story. Most literary essay tasks will instruct the
writer to “avoid plot summary;” the term is therefore rarely useful for
response or critical analysis. When discussing plot, it is generally more
useful to consider and analyze its structure, rather than simply
recapitulate “what happens.”

Point-of-view: The identity of the narrative voice; the person or entity through
whom the reader experiences the story. May be third-person (no narrator;
abstract narrative voice, omniscient or limited) or first-person (narrated by
a character in the story or a direct observer). Point-of-view is a commonly
misused term; it does not refer to the author’s or characters’ feelings,
opinions, perspectives, biases, etc.
 Though it is written in third-person, Animal Farm is told from the limited
point-of-view of the common animals, unaware of what is really
happening as the pigs gradually and secretively take over the farm.

Writing the story in first-person point-of-view enables the reader to

experience the soldier’s fear and uncertainty, limiting the narrative to
what only he saw, thought and felt during the battle.

Protagonist: The main character in a story, the one with whom the reader is
meant to identify. The person is not necessarily “good” by any
conventional moral standard, but he/she is the person in whose plight the
reader is most invested. (Although it is technically a literary element, the
term is only useful for identification, as part of a discussion or analysis of
character; it cannot generally be analyzed by itself.)

Repetition: Where a specific word, phrase, or structure is repeated several times,

usually in close proximity, to emphasize a particular idea.

The repetition of the words “What if…” at the beginning of each line
reinforces the speaker’s confusion and fear.

Setting: The time and place where a story occurs. The setting can be specific
(e.g., New York City in 1930) or ambiguous (e.g., a large urban city
during economic hard times). Also refers directly to a description thereof.
When discussing or analyzing setting, it is generally insufficient to merely
identify the time and place; an analysis of setting should include a
discussion of its overall impact on the story and characters.

The novel is set in the South during the racially turbulent 1930’s, when
blacks were treated unfairly by the courts.

With the island, Golding creates a pristine, isolated and uncorrupted

setting, in order to show that the boys’ actions result from their own
essential nature rather than their environment.

Simile: An indirect relationship where one thing or idea is described as being

similar to another. Similes usually contain the words “like” or “as,” but
not always.

The simile in line 10 describes the lunar eclipse: “The moon appeared
crimson, like a drop of blood hanging in the sky.”

The character’s gait is described in the simile: “She hunched and

struggled her way down the path, the way an old beggar woman might
wander about.”
Speaker: The “voice” of a poem; not to be confused with the poet him/herself.
Analogous to the narrator in prose fiction.

Structure: The manner in which the various elements of a story are assembled.

The individual tales are told within the structure of the larger framing
story, where the 29 travelers gather at the Inn at Southwark on their
journey to Canterbury, telling stories to pass the time.

The play follows the traditional Shakespearean five-act plot structure,

with exposition in Act I, development in Act II, the climax or turning point
in Act III, falling action in Act IV, and resolution in Act V.

Symbolism: The use of specific objects or images to represent abstract ideas.

This term is commonly misused, describing any and all representational
relationships, which in fact are more often metaphorical than symbolic. A
symbol must be something tangible or visible, while the idea it
symbolizes must be something abstract or universal. (In other words, a
symbol must be something you can hold in your hand or draw a picture of,
while the idea it symbolizes must be something you can’t hold in your
hand or draw a picture of.)

Golding uses symbols to represent the various aspects of human nature

and civilization as they are revealed in the novel. The conch symbolizes
order and authority, while its gradual deterioration and ultimate
destruction metaphorically represent the boys’ collective downfall.

Theme: The main idea or message conveyed by the piece. A theme should
generally be expressed as a complete sentence; an idea expressed by a
single word or fragmentary phrase is usually a motif.

Orwell’s theme is that absolute power corrupts absolutely.

The idea that human beings are essentially brutal, savage creatures
provides the central theme of the novel.
Tone: The apparent emotional state, or “attitude,” of the
speaker/narrator/narrative voice, as conveyed through the language of the
piece. Tone refers only to the narrative voice; not to the author or
characters. It must be described or identified in order to be analyzed
properly; it would be incorrect to simply state, “The author uses tone.”

The poem has a bitter and sardonic tone, revealing the speaker’s anger
and resentment.

The tone of Gulliver’s narration is unusually matter-of-fact, as he seems

to regard these bizarre and absurd occurrences as ordinary or
commonplace.

Tragedy: Where a story ends with a negative or unfortunate outcome which was
essentially avoidable, usually caused by a flaw in the central character’s
personality. Tragedy is really more of a dramatic genre than a literary
element; a play can be referred to as a tragedy, but tragic events in a story
are essentially part of the plot, rather than a literary device in themselves.
When discussing tragedy, or analyzing a story as tragic, look to the other
elements of the story which combine to make it tragic.

Tragic hero/tragic figure: A protagonist who comes to a bad end as a result of

his own behavior, usually cased by a specific personality disorder or
character flaw. (Although it is technically a literary element, the term is
only useful for identification, as part of a discussion or analysis of
character; it cannot generally be analyzed by itself.)

Willy Loman is one of the best-known tragic figures in American literature,

oblivious to and unable to face the reality of his life.

Tragic flaw: The single characteristic (usually negative) or personality disorder

which causes the downfall of the protagonist.

Othello’s tragic flaw is his jealousy, which consumes him so thoroughly

that he is driven to murder his wife rather than accept, let alone confirm,
her infidelity. (Although it is technically a literary element, the term is
only useful for identification, as part of a discussion or analysis of
character; it cannot generally be analyzed by itself.)

Verbal irony: Where the meaning of a specific expression is, or is intended to be,
the exact opposite of what the words literally mean. (Sarcasm is a tone of
voice that often accompanies verbal irony, but they are not the same
thing.)

Orwell gives this torture and brainwashing facility the ironic title,
“Ministry of Love.”
Supply and demand
From Wikipedia, the free encyclopedia

Jump to: navigation, search

For other uses, see Supply and demand (disambiguation).

The price P of a product is determined by a balance between production at each price

(supply S) and the desires of those with purchasing power at each price (demand D). 2,
along with a consequent increase in price (P) and quantity sold (Q) of the product.

Supply and demand is an economic model based on price, utility and quantity in a
market. It concludes that in a competitive market, price will function to equalize the
quantity demanded by consumers, and the quantity supplied by producers, resulting in an
economic equilibrium of price and quantity.

Contents
[hide]

• 1 The graphical representation of supply and demand

• 2 Demand schedule
• 3 Changes in market equilibrium
o 3.1 Demand curve shifts
o 3.2 Supply curve shifts
• 4 Elasticity
• 5 Vertical supply curve (perfectly inelastic supply)
• 6 Other markets
• 7 Other market forms
• 8 Empirical estimation
• 9 Macroeconomic uses of demand and supply
• 10 Demand shortfalls
• 11 History
• 12 Criticism
• 13 See also
• 14 References

• 15 External links

[edit] The graphical representation of supply and

demand
The supply-demand model is a partial equilibrium model representing the determination
of the price of a particular good and the quantity of that good which is traded. Although it
is normal to regard the quantity demanded and the quantity supplied as functions of the
price of the good, the standard graphical representation, usually attributed to Alfred
Marshall has price on the vertical axis and quantity on the horizontal axis, the opposite of
the standard convention for the representation of a mathematical function.

Determinants of supply and demand other than the price of the good in question, such as
consumers income, input prices and so on are not explicitly represented in the supply-
demand diagram. Changes in the values of these variables are represented by shifts in the
supply and demand curves. By contrast, responses to changes in the price of the good are
represented as movements along unchanged supply and demand curves.

[edit] Demand schedule

The demand schedule, depicted graphically as the demand curve, represents the amount
of goods that buyers are willing and able to purchase at various prices, assuming all other
non-price factors remain the same. Following the law of demand, the demand curve is
almost always represented as downward-sloping, meaning that as price decreases,
consumers will buy more of the good.[1]

Just as the supply curves reflect marginal cost curves, demand curves can be described as
marginal utility curves.[2] The demand schedule is defined as the willingness and ability of
a consumer to purchase a given product in a given frame of time.

The main determinants of individual demand are: the price of the good, level of income,
personal tastes, the price of substitute goods, and the price of complementary goods.

As described above, the demand curve is generally downward sloping. There may be rare
examples of goods that have upward sloping demand curves. Two different hypothetical
types of goods with upward-sloping demand curves are Giffen goods (an inferior, but
staple, good) and Veblen goods (goods made more fashionable by a higher price).

[edit] Changes in market equilibrium

Practical uses of supply and demand analysis often center on the different variables that
change equilibrium price and quantity, represented as shifts in the respective curves.
Comparative statics of such a shift traces the effects from the initial equilibrium to the
new equilibrium.

[edit] Demand curve shifts

Main article: Demand curve

An out-ward or right-ward shift in demand increases both equilibrium price and quantity

When consumers increase the quantity demanded at a given price, it is referred to as an

increase in demand. Increased demand can be represented on the graph as the curve
being shifted outward. At each price point, a greater quantity is demanded, as from the
initial curve D1 to the new curve D2. More people wanting coffee is an example. In the
diagram, this raises the equilibrium price from P1 to the higher P2. This raises the
equilibrium quantity from Q1 to the higher Q2. A movement along the curve is described
as a "change in the quantity demanded" to distinguish it from a "change in demand," that
is, a shift of the curve. In the example above, there has been an increase in demand which
has caused an increase in (equilibrium) quantity. The increase in demand could also come
from changing tastes and fads, incomes, complementary and substitute price changes,
market expectations, and number of buyers. This would cause the entire demand curve to
shift changing the equilibrium price and quantity.

If the demand decreases, then the opposite happens: an inward shift of the curve. If the
demand starts at D2, and decreases to D1, the price will decrease, and the quantity will
decrease. This is an effect of demand changing. The quantity supplied at each price is the
same as before the demand shift (at both Q1 and Q2). The equilibrium quantity, price and
demand are different. At each point, a greater amount is demanded (when there is a shift
from D1 to D2).

The demand curve "shifts" because a non-price determinant of demand has changed.
Graphically the shift is due to a change in the x-intercept. A shift in the demand curve
due to a change in a non-price determinant of demand will result in the market's being in
a non-equilibrium state. If the demand curve shifts out the result will be a shortage — at
the new market price quantity demanded will exceed quantity supplied. If the demand
curve shifts in, there will be a surplus — at the new market price quantity supplied will
exceed quantity demanded. The process by which a new equilibrium is established is not
the province of comparative statics — the answers to issues concerning when, whether
and how a new equilibrium will be established are issues that are addressed by stochastic
models — economic dynamics.

[edit] Supply curve shifts

Main article: Supply (economics)

An out-ward or right-ward shift in supply reduces equilibrium price but increases

quantity

When the suppliers' costs change for a given output, the supply curve shifts in the same
direction. For example, assume that someone invents a better way of growing wheat so
that the cost of growing a given quantity of wheat decreases. Otherwise stated, producers
will be willing to supply more wheat at every price and this shifts the supply curve S1
outward, to S2—an increase in supply. This increase in supply causes the equilibrium
price to decrease from P1 to P2. The equilibrium quantity increases from Q1 to Q2 as the
quantity demanded extends at the new lower prices. In a supply curve shift, the price and
the quantity move in opposite directions.

If the quantity supplied decreases at a given price, the opposite happens. If the supply
curve starts at S2, and shifts inward to S1, demand contracts, the equilibrium price will
increase, and the equilibrium quantity will decrease. This is an effect of supply changing.
The quantity demanded at each price is the same as before the supply shift (at both Q1
and Q2). The equilibrium quantity, price and supply changed.

When there is a change in supply or demand, there are three possible movements. The
demand curve can move inward or outward. The supply curve can also move inward or
outward.

[edit] Elasticity
Main article: Elasticity (economics)

Elasticity is a central concept in the theory of supply and demand. In this context,
elasticity refers to how supply and demand respond to various factors, including price as
well as other stochastic principles. One way to define elasticity is the percentage change
in one variable divided by the percentage change in another variable (known as arc
elasticity, which calculates the elasticity over a range of values, in contrast with point
elasticity, which uses differential calculus to determine the elasticity at a specific point).
It is a measure of relative changes.

Often, it is useful to know how the quantity demanded or supplied will change when the
price changes. This is known as the price elasticity of demand and the price elasticity of
supply. If a monopolist decides to increase the price of their product, how will this affect
their sales revenue? Will the increased unit price offset the likely decrease in sales
volume? If a government imposes a tax on a good, thereby increasing the effective price,
how will this affect the quantity demanded?

Elasticity corresponds to the slope of the line and is often expressed as a percentage. In
other words, the units of measure (such as gallons vs. quarts, say for the response of
quantity demanded of milk to a change in price) do not matter, only the slope. Since
supply and demand can be curves as well as simple lines the slope, and hence the
elasticity, can be different at different points on the line.

Elasticity is calculated as the percentage change in quantity over the associated

percentage change in price. For example, if the price moves from $1.00 to $1.05, and the
quantity supplied goes from 100 pens to 102 pens, the slope is 2/0.05 or 40 pens per
dollar. Since the elasticity depends on the percentages, the quantity of pens increased by
2%, and the price increased by 5%, so the price elasticity of supply is 2/5 or 0.4.
Since the changes are in percentages, changing the unit of measurement or the currency
will not affect the elasticity. If the quantity demanded or supplied changes a lot when the
price changes a little, it is said to be elastic. If the quantity changes little when the prices
changes a lot, it is said to be inelastic. An example of perfectly inelastic supply, or zero
elasticity, is represented as a vertical supply curve. (See that section below)

Elasticity in relation to variables other than price can also be considered. One of the most
common to consider is income. How would the demand for a good change if income
increased or decreased? This is known as the income elasticity of demand. For example,
how much would the demand for a luxury car increase if average income increased by
10%? If it is positive, this increase in demand would be represented on a graph by a
positive shift in the demand curve. At all price levels, more luxury cars would be
demanded.

Another elasticity sometimes considered is the cross elasticity of demand, which

measures the responsiveness of the quantity demanded of a good to a change in the price
of another good. This is often considered when looking at the relative changes in demand
when studying complement and substitute goods. Complement goods are goods that are
typically utilized together, where if one is consumed, usually the other is also. Substitute
goods are those where one can be substituted for the other, and if the price of one good
rises, one may purchase less of it and instead purchase its substitute.

Cross elasticity of demand is measured as the percentage change in demand for the first
good that occurs in response to a percentage change in price of the second good. For an
example with a complement good, if, in response to a 10% increase in the price of fuel,
the quantity of new cars demanded decreased by 20%, the cross elasticity of demand
would be -2.0.

In a perfect economy, any market should be able to move to the equilibrium position
instantly without travelling along the curve. Any change in market conditions would
cause a jump from one equilibrium position to another at once. So the perfect economy is
actually analogous to the quantum economy. Unfortunately in real economic systems,
markets don't behave in this way, and both producers and consumers spend some time
travelling along the curve before they reach equilibrium position. This is due to
asymmetric, or at least imperfect, information, where no one economic agent could ever
be expected to know every relevant condition in every market. Ultimately both producers
and consumers must rely on trial and error as well as prediction and calculation to find an
the true equilibrium of a market.

[edit] Vertical supply curve (perfectly inelastic supply)

When demand D1 is in effect, the price will be P1. When D2 is occurring, the price will be
P2. The quantity is always Q, any shifts in demand will only affect price.
If the quantity supplied is fixed no matter what the price, the supply curve is a vertical
line, and supply is called perfectly inelastic. In practice, vertical supply curves rarely
exist.

As a hypothetical example, consider the supply curve of the land. Suppose that no matter
how much someone would be willing to pay for an additional piece, more land cannot be
created. Also, even if no one wanted all the land, it still would exist. In such a case, land
would have a vertical supply curve, with zero elasticity.

[edit] Other markets

The model of supply and demand also applies to various specialty markets.

The model is commonly applied to wages, in the market for labor. The typical roles of
supplier and consumer are reversed. The suppliers are individuals, who try to sell their
labor for the highest price. The consumers of labors are businesses, which try to buy the
type of labor they need at the lowest price. The equilibrium price for a certain type of
labor is the wage.[3]

A number of economists (for example Pierangelo Garegnani[4], Robert L. Vienneau[5], and

Arrigo Opocher & Ian Steedman[6]), building on the work of Piero Sraffa, argue that that
this model of the labor market, even given all its assumptions, is logically incoherent.
Michael Anyadike-Danes and Wyne Godley [7] argue, based on simulation results, that
little of the empirical work done with the textbook model constitutes a potentially
falsifying test, and, consequently, empirical evidence hardly exists for that model.
Graham White [8] argues, partially on the basis of Sraffianism, that the policy of increased
labor market flexibility, including the reduction of minimum wages, does not have an
"intellectually coherent" argument in economic theory.

This criticism of the application of the model of supply and demand generalizes,
particularly to all markets for factors of production. It also has implications for monetary
theory[9] not drawn out here.

In both classical and Keynesian economics, the money market is analyzed as a supply-
and-demand system with interest rates being the price. The money supply may be a
vertical supply curve, which the central bank of a country can influence through
monetary policy. Some economists[10] argue that the money supply curve should be drawn
as a horizontal line. The demand for money intersects with the money supply to
determine the interest rate.[11]

[edit] Other market forms

The supply and demand model is used to explain the behavior of perfectly competitive
markets, but its usefulness as a standard of performance extends to other types of
markets. In such markets, there may be no supply curve, such as above, except by
analogy. Rather, the supplier or suppliers are modeled as interacting with demand to
determine price and quantity. In particular, the decisions of the buyers and sellers are
interdependent in a way different from a perfectly competitive market.

A monopoly is the case of a single supplier that can adjust the supply or price of a good at
will. The profit-maximizing monopolist is modeled as adjusting the price so that its profit
is maximized given the amount that is demanded at that price. This price will be higher
than in a competitive market. A similar analysis can be applied when a good has a single
buyer, a monopsony, but many sellers. Oligopoly is a market with so few suppliers that
they must take account of their actions on the market price or each other. Game theory
may be used to analyze such a market.

The supply curve does not have to be linear. However, if the supply is from a profit-
maximizing firm, it can be proven that downward sloping supply curves (i.e., a price
decrease increasing the quantity supplied) are inconsistent with perfect competition in
equilibrium. Then supply curves from profit-maximizing firms can be vertical, horizontal
or upward sloping.

Similarly, the demand curve is rarely linear. A great empirical example of this is given in
this article on computer software pricing where the vendor deliberately varied the price
and measured the resulting demand. It produced a very non linear demand curve.

[edit] Empirical estimation

Demand and supply relations in a market can be statistically estimated from price,
quantity, and other data with sufficient information in the model. This can be done with
simultaneous-equation methods of estimation in econometrics. Such methods allow
solving for the model-relevant "structural coefficients," the estimated algebraic
counterparts of the theory. The Parameter identification problem is a common issue in
"structural estimation." Typically, data on exogenous variables (that is, variables other
than price and quantity, both of which are endogenous variables) are needed to perform
such an estimation. An alternative to "structural estimation" is reduced-form estimation,
which regresses each of the endogenous variables on the respective exogenous variables.

[edit] Macroeconomic uses of demand and supply

Demand and supply have also been generalized to explain macroeconomic variables in a
market economy, including the quantity of total output and the general price level. The
Aggregate Demand-Aggregate Supply model may be the most direct application of
supply and demand to macroeconomics, but other macroeconomic models also use
supply and demand. Compared to microeconomic uses of demand and supply, different
(and more controversial) theoretical considerations apply to such macroeconomic
counterparts as aggregate demand and aggregate supply. Demand and supply may also
be used in macroeconomic theory to relate money supply to demand and interest rates.
[edit] Demand shortfalls
A demand shortfall results from the actual demand for a given product being lower than
the projected, or estimated, demand for that product. Demand shortfalls are caused by
demand overestimation in the planning of new products. Demand overestimation is
caused by optimism bias and/or strategic misrepresentation.

[edit] History
The power of supply and demand was understood to some extent by several early Muslim
economists, such as Ibn Taymiyyah who illustrates:

"If desire for goods increases while its availability decreases, its price rises. On the other hand, if
availability of the good increases and the desire for it decreases, the price comes down."[12]

The phrase "supply and demand" was first used by James Denham-Steuart in his Inquiry
into the Principles of Political Economy, published in 1767. Adam Smith used the phrase
in his 1776 book The Wealth of Nations, and David Ricardo titled one chapter of his 1817
work Principles of Political Economy and Taxation "On the Influence of Demand and
Supply on Price".[13]

In The Wealth of Nations, Smith generally assumed that the supply price was fixed but
that its "merit" (value) would decrease as its "scarcity" increased, in effect what was later
called the law of demand. Ricardo, in Principles of Political Economy and Taxation,
more rigorously laid down the idea of the assumptions that were used to build his ideas of
supply and demand. Antoine Augustin Cournot first developed a mathematical model of
supply and demand in his 1838 Researches on the Mathematical Principles of the Theory
of Wealth.

During the late 19th century the marginalist school of thought emerged. This field mainly
was started by Stanley Jevons, Carl Menger, and Léon Walras. The key idea was that the
price was set by the most expensive price, that is, the price at the margin. This was a
substantial change from Adam Smith's thoughts on determining the supply price.

In his 1870 essay "On the Graphical Representation of Supply and Demand", Fleeming
Jenkin drew for the first time the popular graphic of supply and demand which, through
Marshall, eventually would turn into the most famous graphic in economics.

The model was further developed and popularized by Alfred Marshall in the 1890
textbook Principles of Economics.[13] Along with Léon Walras, Marshall looked at the
equilibrium point where the two curves crossed. They also began looking at the effect of
markets on each other.

[edit] Criticism
At least two assumptions are necessary for the validity of the standard model: first, that
supply and demand are independent; and second, that supply is "constrained by a fixed
resource"; If these conditions do not hold, then the Marshallian model cannot be
sustained. Sraffa's critique focused on the inconsistency (except in implausible
circumstances) of partial equilibrium analysis and the rationale for the upward-slope of
the supply curve in a market for a produced consumption good[14]. Paul A. Samuelson has
acknowledged the cogency of Sraffa's critique:

"What a cleaned-up version of Sraffa (1926) establishes is how nearly empty are
all of Marshall's partial equilibrium boxes. To a logical purist of Wittgenstein and
Sraffa class, the Marshallian partial equilibrium box of constant cost is even
more empty than the box of increasing cost."[15].

Aggregate excess demand in a market is the difference between the quantity demanded
and the quantity supplied as a function of price. In the model with an upward-sloping
supply curve and downward-sloping demand curve, the aggregate excess demand
function only intersects the axis at one point, namely, at the point where the supply and
demand curves intersect. The Sonnenschein-Mantel-Debreu theorem shows that the
standard model cannot be rigorously derived in general from the theory of general
equilibrium[16].

The model of prices being determined by supply and demand assume perfect
competition. But:

"economists have no adequate model of how individuals and firms adjust prices in
a competitive model. If all participants are price-takers by definition, then the
actor who adjusts prices to eliminate excess demand is not specified"[17].

[edit] See also

Look up supply or demand in Wiktionary, the free dictionary.

• Aggregate demand
• Aggregate supply
• Alpha consumer
• Artificial demand
• Barriers to entry
• Consumer theory
• Deadweight loss
• Demand Forecasting
• Demand shortfall
• Economic surplus
• Effect of taxes and subsidies on price
• Elasticity
• Externality
 • Foundations of Economic Analysis by Paul A. Samuelson
• History of economic thought
• Induced demand
• "invisible hand"
• Inverse demand function
• Labor shortage
• Microeconomics
• Producer's surplus
• Protectionism
• Profit
• Rationing
• Real prices and ideal prices
• Say's Law
• Supply shock
• An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith

[edit] References
1. ^ Note that unlike most graphs, supply & demand curves are plotted with the independent variable
(price) on the vertical axis and the dependent variable (quantity supplied or demanded) on the
horizontal axis.
2. ^ "Marginal Utility and Demand". http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=marginal+utility+and+demand.
Retrieved 2007-02-09.
3. ^ Kibbe, Matthew B.. "The Minimum Wage: Washington's Perennial Myth". Cato Institute.
http://www.cato.org/pubs/pas/pa106.html. Retrieved 2007-02-09.
4. ^ P. Garegnani, "Heterogeneous Capital, the Production Function and the Theory of Distribution",
Review of Economic Studies, V. 37, N. 3 (Jul. 1970): 407-436
5. ^ Robert L. Vienneau, "On Labour Demand and Equilibria of the Firm", Manchester School, V.
73, N. 5 (Sep. 2005): 612-619
6. ^ Arrigo Opocher and Ian Steedman, "Input Price-Input Quantity Relations and the Numeraire",
Cambridge Journal of Economics, V. 3 (2009): 937-948
7. ^ Michael Anyadike-Danes and Wyne Godley, "Real Wages and Employment: A Sceptical View
of Some Recent Empirical Work", Machester School, V. 62, N. 2 (Jun. 1989): 172-187
8. ^ Graham White, "The Poverty of Conventional Economic Wisdom and the Search for Alternative
Economic and Social Policies", The Drawing Board: An Australian Review of Public Affairs, V. 2,
N. 2 (Nov. 2001): 67-87
9. ^ Colin Rogers, Money, Interest and Capital: A Study in the Foundations of Monetary Theory,
Cambridge University Press, 1989
10. ^ Basij J. Moore, Horizontalists and Verticalists: The Macroeconomics of Credit Money,
Cambridge University Press, 1988
11. ^ Ritter, Lawrence S.authorlink1 = Lawrence S. Ritter; Silber, William L.; Udell, Gregory F. (2000). Principles
of Money, Banking, and Financial Markets (10th edition ed.). Addison-Wesley, Menlo Park C. pp. 431-
438,465-476. ISBN 0-321-37557-2.
12. ^ Hosseini, Hamid S. (2003). "Contributions of Medieval Muslim Scholars to the History of Economics and
their Impact: A Refutation of the Schumpeterian Great Gap". in Biddle, Jeff E.; Davis, Jon B.; Samuels,
Warren J.. A Companion to the History of Economic Thought. Malden, MA: Blackwell. pp. 28–45 [28 & 38].
doi:10.1002/9780470999059.ch3. ISBN 0631225730.
13. ^ a b Humphrey, Thomas M. (March/April 1992). "Marshallian Cross Diagrams and Their Uses before Alfred
Marshall: The Origins of Supply and Demand Geometry" ([dead link] – Scholar search). Economic Review.
 Federal Reserve Bank of
http://www.richmondfed.org/publications/economic_research/economic_review/pdfs/er780201.pdf,.
Richmond.
14. ^ Avi J. Cohen, "'The Laws of Returns Under Competitive Conditions': Progress in
Microeconomics Since Sraffa (1926)?", Eastern Economic Journal, V. 9, N. 3 (Jul.-Sep.): 1983)
15. ^ Paul A. Samuelson, "Reply" in Critical Essays on Piero Sraffa's Legacy in Economics (edited
by H. D. Kurz) Cambridge University Press, 2000
16. ^ Alan Kirman, "The Intrinsic Limits of Modern Economic Theory: The Emperor has No
Clothes", The Economic Journal, V. 99, N. 395, Supplement: Conference Papers (1989): pp. 126-
139
17. ^ Alan P. Kirman, "Whom or What Does the Representative Individual Represent?" Journal of
Economic Perspectives, V. 6, N. 2 (Spring 1992): pp. 117-136

[edit] External links

• Nobel Prize Winner Prof. William Vickrey: 15 fatal fallacies of financial
fundamentalism - A Disquisition on Demand Side Economics
• "Marshallian Cross Diagrams and Their Uses before Alfred Marshall: The Origins
of Supply and Demand Geometry" by Thomas Humphrey (via the Richmond Fed)
• Supply and Demand book by Hubert D. Henderson at Project Gutenberg.
• Price Theory and Applications by Steven E. Landsburg ISBN 0-538-88206-9
• An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith,
1776 [1]
• By what is the price of a commodity determined?, a brief statement of Karl Marx's
rival account [2]
• The Economic Motivation of Open Source Software: Stakeholder Perspectives,
Dirk Riehle, 2007 [3]
• Supply and Demand by Fiona Maclachlan and Basic Supply and Demand by
Mark Gillis, Wolfram Demonstrations Project.

[hide]

v•d•e

Microeconomics

Scarcity · Opportunity cost · Supply and demand · Elasticity · Economic surplus ·

Major topics Economic shortage · Aggregation problem · Consumer theory · Market structure ·
Welfare economics · Market failure

Related List of topics in industrial organization

Retrieved from "http://en.wikipedia.org/wiki/Supply_and_demand"
Categories: Consumer theory | Economics laws | Economics curves | Economics
terminology
Hidden categories: All articles with dead external links | Articles with dead external links
from June 2008
Price elasticity of demand
From Wikipedia, the free encyclopedia

Jump to: navigation, search

For the supply, see Price elasticity of supply.
This section may require cleanup to meet Wikipedia's quality standards. Please
improve this section if you can. (June 2009)

Price elasticity of demand (PED) is defined as the responsiveness of the quantity

demanded of a good or service to a change in its price.

In other words, it is percentage change of quantity demanded by the percentage change in

price of the same commodity. In economics and business studies, the price elasticity of
demand is a measure of the sensitivity of quantity demanded to changes in price. It is
measured as elasticity, that is it measures the relationship as the ratio of percentage
changes between quantity demanded of a good and changes in its price.

In simpler words: demand for a product can be said to be very inelastic if consumers will
pay almost any price for the product, while demand for a product may be elastic if
consumers will only pay a certain price, or a narrow range of prices, for the product.
Inelastic demand means a producer can raise prices without much hurting demand for its
product, and elastic demand means that consumers are sensitive to the price at which a
product is sold and will not buy it if the price rises by what they consider too much.

Drinking water is a good example of a good that has inelastic characteristics - in that
people will pay anything for it. On the other hand, demand for sugar is very elastic
because as the price of sugar increases there are many substitutions which consumers
may switch to.
Perfectly inelastic demand

Perfectly elastic demand

Value Meaning

Ed = 0 Perfectly inelastic.

- 1 < Ed < 0 Relatively inelastic.

Ed = - 1 Unit (or unitary) elastic.

-∞ < Ed < - 1 Relatively elastic.

Ed = -∞ Perfectly elastic.

A price fall usually results in an increase in the quantity demanded by consumers (see
Giffen good for an exception). The demand for a good is relatively inelastic when the
change in quantity demanded is less than change in price. Goods and services for which
no substitutes exist are generally inelastic. Demand for an antibiotic, for example,
becomes highly inelastic when it alone can kill an infection resistant to all other
antibiotics. Rather than die of an infection, patients will generally be willing to pay
whatever is necessary to acquire enough of the antibiotic to kill the infection.

Various research methods are used to calculate price elasticity:

• Test markets
• Analysis of historical sales data
• Conjoint analysis

Price elasticity is always negative, although analysts tend to ignore the sign. It is always
negative due to the very nature of demand, if the price increases, less is demanded, thus
quantity change is negative, leading to a negative price elasticity of demand. Conversely,
if price falls, this negative value will lead to a negative price elasticity of demand value.

Contents
[hide]

• 1 Determinants
• 2 Elasticity and revenue
• 3 Mathematical definition
o 3.1 Point-price elasticity
• 4 See also
• 5 External links
• 6 References
o 6.1 Notes

o 6.2 General references

[edit] Determinants
A number of factors determine the elasticity:

• Substitutes: The more substitutes, the higher the elasticity, as people can easily
switch from one good to another if a minor price change is made
 • Percentage of income: The higher the percentage that the product's price is of the
consumer's income, the higher the elasticity, as people will be careful with
purchasing the good because of its cost
• Necessity: The more necessary a good is, the lower the elasticity, as people will
attempt to buy it no matter the price, such as the case of insulin for those that need
it.
• Duration: The longer a price change holds, the higher the elasticity, as more and
more people will stop demanding the goods (i.e. if you go to the supermarket and
find that blueberries have doubled in price, you'll buy it because you need it this
time, but next time you won't, unless the price drops back down again)

• Breadth of definition: The broader the definition, the lower the elasticity. For
example, Company X's fried dumplings will have a relatively high elasticity,
whereas food in general will have an extremely low elasticity (see Substitutes,
Necessity above)
[1][2]

[edit] Elasticity and revenue

See also: Total revenue test

A firm considering a price change must know what effect the change in price will have
on total revenue. Generally any change in price will have two effects:

• the price effect: an increase in unit price will tend to increase revenue, while a
decrease in price will tend to decrease revenue.
• the quantity effect: an increase in unit price will tend to lead to fewer units sold,
while a decrease in unit price will tend to lead to more units sold.[3]

Because of the inverse nature of the demand relationship the two effects are offsetting.
The firm needs to know what the net effect will be. Elasticity provides the answer.

A set of graphs shows the relationship between demand and total revenue. As price
decreases in the elastic range, revenue increases, but in the inelastic range, revenue
decreases.

When the price elasticity of demand for a good is inelastic (|Ed| < 1), the percentage
change in quantity demanded is smaller than that in price. Hence, when the price is
raised, the total revenue of producers rises, and vice versa.
When the price elasticity of demand for a good is elastic (|Ed| > 1), the percentage change
in quantity demanded is greater than that in price. Hence, when the price is raised, the
total revenue of producers falls, and vice versa.

When the price elasticity of demand for a good is unit elastic (or unitary elastic) (|Ed| =
1), the percentage change in quantity is equal to that in price.

When the price elasticity of demand for a good is perfectly elastic (Ed is undefined), any
increase in the price, no matter how small, will cause demand for the good to drop to
zero. Hence, when the price is raised, the total revenue of producers falls to zero. The
demand curve is a horizontal straight line. A banknote is the classic example of a
perfectly elastic good; nobody would pay £10.01 for a £10 note, yet everyone will pay
£9.99 for it.

When the price elasticity of demand for a good is perfectly inelastic (Ed = 0), changes in
the price do not affect the quantity demanded for the good. The demand curve is a
vertical straight line; this violates the law of demand. An example of a perfectly inelastic
good is a human heart for someone who needs a transplant; neither increases nor
decreases in price affect the quantity demanded (no matter what the price, a person will
pay for one heart but only one; nobody would buy more than the exact amount of hearts
demanded, no matter how low the price is).

Note that a firm would never operate within the inelastic range of its demand curve since
by raising prices the firm would assure not only an increase in revenue but also an
increase in profits.

[edit] Mathematical definition

The formula used to calculate coefficients of price elasticity of demand for a given
product is

Conventions differ regarding the minus sign, considering remarks like "price elasticity of
demand is usually negative". (The sign of the coefficient should actually be determined
by the directions in which price and quantity change; i.e. if the price increases by 5% and
quantity demanded decreases by 5%, then the elasticity at the initial price and quantity =
−5%/5% = −1. Note, however, that many economists will refer to price-elasticity of
demand as a positive value although it is generally negative due to the negative
relationship between price and quantity demanded.)

This simple formula has a problem, however. It yields different values for Ed depending
on whether Qd and Pd are the original or final values for quantity and price. This formula
is usually valid either way as long as you are consistent and choose only original values
or only final values. (note that a percentage change is always calculated with the initial
value in the denominator; if you are to use your final value in the denominator then you
must treat that value as the initial value in the numerator. i.e. if price increases from $5 to
$10, then the percentage increase is calculated as: ((10 − 5)/5)*100 = 100%. If price
decreases from 10 to 5, the percent decrease = ((5 − 10)/10))*100 = −50%. If you throw
10 into the denominator without switching the terms in the numerator your product's
price will appear to increase by 50% which is simply not true.)

Or, using the differential calculus form:

This can be rewritten in the form:

On the graduate level, Mas-Colell, Winston, and Green (1995) defines elasticity of
demand with respect to price as follows. Let be the demand of goods as a function of
parameters price and wealth, and let be the demand for good . The elasticity of demand
with respect to price pk is

[edit] Point-price elasticity

• Point Elasticity = (% change in Quantity) / (% change in Price)

• Point Elasticity = (∆Q/Q)/(∆P/P)
• Point Elasticity = (P ∆Q) / (Q ∆P)
• Point Elasticity = (P/Q)(∆Q/∆P) Note: In the limit (or "at the margin"), "(∆Q/∆P)"
is the derivative of the demand function with respect to P. "Q" means 'Quantity'
and "P" means 'Price'.
• Example
Suppose a certain good (say, laserjet printers) has a demand curve Q = 1,000 −
0.6P. We wish to determine the point-price elasticity of demand at P = 80 and P =
40. First, we take the derivative of the demand function Q with respect to P:

Next we apply the equation for point-price elasticity, namely

to the ordered pairs (40, 976) and (80, 952). We have

at P=40, point-price elasticity e = −0.6(40/976) = −0.02.
at P=80, point-price elasticity e = −0.6(80/952) = −0.05.

[edit] See also

• Arc elasticity
• Cross elasticity of demand
• Elasticity
• Income elasticity of demand
• Jevons paradox
• Price elasticity of supply
• Supply and demand
• Yield elasticity of bond value

[edit] External links

 • Approx. PED of Various Products (U.S.)

[edit] References
[edit] Notes

1. ^ Economic Concepts
2. ^ ECO 240 | Tutorial 4a
3. ^ Krugman & Wells, Microeconomics 2d ed. (Worth 2009) at 151 ISBN 978-0-7167-7159-3

[edit] General references

• Case, Karl E. & Fair, Ray C. (1999). Principles of Economics (5th ed.). Prentice-
Hall. ISBN 0-13-961905-4.
• Mas-Colell, Andreu, Michael D. Winston, and Jerry R. Green. Microeconomic
Theory. Oxford University Press, New York, 1995.

Retrieved from "http://en.wikipedia.org/wiki/Price_elasticity_of_demand"

Categories: Elasticity | Consumer theory
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