An Empirical Project on The Effect of Variable A on Variable B - Research Paper Example

In this research, the two variables in the investigation is the price of a pair of shoe and its demand in the market. To achieve this, several tools would be in place to determine whether there is indeed a relationship between the price and demand of a commodity. The tool used in this research is the price of elasticity of demand. In calculating the price elasticity of demand, the tool exploits the use of other several factors which have a role in determining demand and price of a commodity. The price of a single type of shoe can influence the demand for that pair in a number of ways.

Price is in different stimuli that affect demand. To come up with the right conclusion on the effect of price on demand, certain price factors to be considered include the average price, nominal price, real price, nominal price, price levels and price changes (Landsburg 18). To explore such dimensions of price, it would depend on the data available. The price level refers to the price that is set on a commodity in a certain region. To approximate the price level, it is important to use the price index.

The nominal value is the value of the commodity in terms of real currency. The real value is a measure of the market purchasing power after some period of time. In determining the estimates for the price elasticity of demand, the following model was in use; wGi= aGi + bGln xi + qGHln pH + • zi + uGi. . This formula could manipulate the amount of data that would be used to determine the price elasticity of demand for a pair of shoe in the market. An important tool to determine the relationship between price and demand is the study of the price elasticity of demand.

The price elasticity of demand is an economic tool that shows the change that exists when there is a change in quantity demanded, on the price of the commodity. In addition, the price elasticity of demand could give a percentage change in the quantity in demand, when the price of the commodity changes by a single percentage. Most of the goods in the market would have a negative price elasticity, thus a negative price elasticity of demand. In many cases, the sign is not that important when analyzing the data.

With a price elasticity of demand that is less than one absolute value, the demand is inelastic. This is interpreted as the change that occur at the price have little effect on the quantity that the market would demand of the good. When the price elasticity of demand is more than one percent, the demand for the commodity is elastic, that is, a slight change in the price of the commodity would result to great change on the good’s quantity demanded (Landsburg 478). The above diagram shows a perfect inelastic price elasticity of demand.

(Landsburg 489) The above diagram shows a perfect elasticity. The price elasticity of demand for a pair of shoes would depend on the following factors; if the substitute good is available, the percentage of income, necessity and other factors. As stated above, the price elasticity of demand for a good relates the price of a commodity to its demand. Therefore, when calculating the price elasticity of demand for a pair of shoe