Price elasticity of demand is the measure of responsiveness of the quantity demanded with respect to changes in price. It measures how much variation would a price change cause in the market. The formula for calculating Price Elasticity of Demand is Percentage Change in Quantity demanded divided by Percentage change in Price…
Download file to see previous pages...
There are some factors which effect the elasticity of supply one of which is the ease availability of resources (Boyes et al, 2008). Cross Elasticity of Demand (XED) measures the responsiveness of quantity demanded of Good A with reference to price changes in Good B. Cross Elasticity is used to measure the degree of substitution between the two products i.e., how close the two goods are substitutes to each other. Again, if the Cross Elasticity Demand of Good A and B is elastic or of a greater value, the products would be close substitutes. A small change in the price of Good B would bring about greater changes in the demand for Good A and vice versa (Mushin, 2000). The formula for Calculating XED is: XED= % Change in Quantity Demanded of Good A (Boyes et al, 2008). % Change in Price of Good B XED= % Change in Quantity Demanded of Good A (Boyes et al, 2008). % Change in Price of Good B = [(1750 – 1500)/1500] * 100 [(?11 - ?10)/10] * 100 =16.6% 10% = 0.6 If Sunsilk and Pantene are taken into consideration, if the Price of Pantene changes by 10%, the demand for Sunsilk would change by more than 10%. This would give a comparatively higher value of XED and hence it can be deduced that Sunsilk and Pantene are close substitutes (Boyes et al, 2008; Mushin, 2000). Income Elasticity of demand is used to measure the nature of the product. If the demand of a product falls when people ‘s income rise, the product would be called an inferior good. In contrast, if the demand of a product rises with people’s income, the product would be called a normal good and vice versa, if the demand of a product falls when people’s income decrease, the product would be called a superior good (Boyes et al, 2008). The formula to calculate this is as follows: YED...
Types of Elasticity of Demand and Its Importance
The method of calculation is the same as other elasticity of demand. Only the Price section has to be replaced with changes income, which would be [(New income – the Old income)/Old income] * 100.
In order to maximize the revenues, firms must have the knowledge about the Income and Price Elasticity of their product. This is because when would plan to raise or reduce their prices to leverage their revenues, this might not prove to be fruitful it unless it is done strategically. If the demand for a product is price elastic, a rise in price would drive the consumers away as the demand would be more responsive to price changes and the consumers are bound to switch to cheaper substitutes. Secondly, if the prices are decreased and if the demand is price inelastic, the firm’s revenue would fall as there would be little reaction from the consumers. If high prices are set for price elastic goods, and low prices are set for price inelastic goods, the revenues would fall. Therefore firms need to know the products’ price elasticity so that it can accurately price its products in order to maximize its revenues.
On the other hand, pricing strategies have to be set in accordance with the product’s Income elasticity of demand. If a rise in mass market’s income leads to a fall in demand, the product would have to be repositioned as a superior good pertaining to the profitability and would have to high priced for revenues to rise.
...Download file to see next pagesRead More
Cite this document
(“Types of Elasticity of Demand and Its Importance Essay”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1408456-types-of-elasticity-of-demand-and-its-importance
(Types of Elasticity of Demand and Its Importance Essay)
“Types of Elasticity of Demand and Its Importance Essay”, n.d. https://studentshare.org/macro-microeconomics/1408456-types-of-elasticity-of-demand-and-its-importance.
Greenhouse gas emissions and price elasticity of transport fuel demand in Belgium. In the article, “Greenhouse gas emissions and price elasticities of transport fuel demand in Belgium” the price elasticity of demand for fuel plays a significant role in analyzing the reduction of greenhouse gas emission from Belgium transport sector through intervention by the Belgian government.
The main purpose of this study is to look into factors that mainly affect Fair Trade coffee demand and work out the coffees’ price elasticity of demand.
This research is mainly aiming in giving answers why many purchasers may buy products of Fair Trade at higher prices than the substitutes of Fair trade goods.
Simply put, it is a unit-free measure. Price elasticity of demand is an integral part in pricing of goods when conducting business. In effect, the price elasticity of demand is a distinct demand curve. The demand curves are grouped on the basis of the size of price elasticity of demand.
(Alfred Marshall, Principle of Economics(1890))
In the words of Paul A. Samuelson, "price elasticity of demand indicates the responsiveness of quantity demanded to the changes in market price." (Anthony Samuelson, Foundations of Economic Analysis, 1947).
When we talk of product price, we mean market price. That is the price at which the product is sold to all buyers in the market. The quantity of a product that we purchase at a certain price is called the demand of the product. Price of a product and its quantity demanded are closely related in the sense that each of these has a bearing on another.
This is Generation-Y. Who or what is Generation-Y
Generation Y, also known as the Net Generation, Millenials, Echo Boomers and iGeneration is that group of youngsters who are born roughly between 1976 and 2001. Their chief distinction is their age. However, that is not the only reason they operate in their distinctive ways.
This paper illustrates that own price elasticity of demand is higher for goods for which consumers have readily available substitutes as in that case in case of very small changes in own prices, ceteris paribus, the substitutes become more attractive. Further, short-term price changes lead to greater sensitivity to demand compared to long-term changes.
The easier it is to swap, the more elastic the demand of such a product is (Mankiw 90).
Type of want is satisfied by product; if the product satisfies basic needs or necessities such as medical care, basic food stuff and housing, then the price elasticity of such
1 Pages(250 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Types of Elasticity of Demand and Its Importance for FREE!