What Type of Good is Steel?
Steel is an alloy of carbon, iron and other elements. It is used as a key component in various items and structures such as infrastructure, ships, tools, buildings, appliances, machines, weapons, and automobiles. The price elasticity of steel is low because it is a necessity good which is used in several industries for construction and manufacturing. If the prices of steel change, the demand does not change significantly. I chose steel because it is a crucial commodity in modern economy, and several sectors of the economy depend on it for development.
The determinants of price elasticity of steel
One of the determinants of the price elasticity of steel is nature of the commodity. Steel is categorized as a necessity good because it is necessary for manufacturing and development in almost all sectors of the modern economy. According to Perloff (2018), the demand for the necessaries of life do not change with changes in price. Thus, steel as a necessary good has an inelastic demand.
Another factor that affects the demand of steel is the variety or number of uses (Economics Discussion, n.d.). Steel has a wide variety of use in construction, home appliances, automobiles, etc. Increased variety of use reduces the elasticity of demand.
Other determinants that affect the elasticity of demand of steel are: substitutes, joint demand, and time factor. Increased number of substitutes increases elasticity of demand (Shivam, n.d.).
Steel is also affected by joint demand. For instance, an increase in demand for buildings increases the demand for steel.
Conclusion
The two most significant factors affecting the elasticity of demand of steel are the nature of the commodity and number of uses. The elasticity of demand of the product is high compared to other products such as milk and electricity because steel has a wider variety of uses and is a necessity of life in modern economy.
