Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Elasticity - Research Paper Example

Comments (0) Cite this document
ELASTICITY OF DEMAND Abstract The sales of a product depend upon the demand for the product. There are several factors which influence the demand for the products. Price being the primary determinant, other factors includes disposable income level of the buyers for the particular product, prices of the substitute products and future trends in prices and changes in tastes and preferences of the consumers…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.9% of users find it useful
Read TextPreview

Extract of sample "Elasticity"

Download file to see previous pages Most of the strategies are designed to overcome the ‘elasticity’ factor. Availability of credit being the important element in the scheme, the seller’s ability to arrange finance for the consumers to buy their product plays an important role with the highly developed financial services sector to-day. Exchange rates and interest rates are the important considerations while buying on credit. The supply side constraints on account of events such as monsoon failure, industrial unrest and natural disasters and the regulation of supply through collusion under monopolistic conditions vitiate the market conditions. The pharmaceutical companies taking advantage of the protection given under patents fix the prices at exorbitant levels for their products, the demand for which are inelastic in nature. This paper seeks to analyze elasticity of demand from a comprehensive perspective. Key words: Elasticity, Demand, Price, Branding & Marketing. ELASTICITY OF DEMAND Price Elasticity of Demand Law of demand states that other things being equal, the quantity demanded extends with a fall in price and contracts with a rise in price. (Mandal, 2007, p. 73) Under the dynamic market conditions, there are several factors which may influence the demand irrespective of change in price. Apart from the accepted exceptions such as prestige goods consumed by rich people which forms the basis for conspicuous consumption and speculative goods like shares where the demand will be more when the prices rise and demand for hoarding purposes due to scarcity or hyper inflation, technically the law of demand does not apply to necessaries of life where the demand is said to be inelastic. Robert Giffen discovery could be the real exception in this case. He found that poor people will demand more of inferior goods if their prices rise. They reduce their expenditure on superior goods to conserve their little income to spend more on inferior goods. The quantum of change is explained by elasticity of demand or rate of change. The ratio of a relative change in quantity to a relative change in price is called as elasticity. Mankiw states that economists compute the price elasticity of demand as the percentage change in the quantity demanded divided by the percentage change in price. That is, Percentage change in quantity demanded Price elasticity of demand = ----------------------------------------------------- Percentage change in price (2012, p.91) The concept of price elasticity of demand is the primary force behind the innovations that we have witnessed during the last few decades. For instance, rising cost of fuel has forced the car companies to manufacture fuel efficient cars. The rise in fuel cost has been compensated by the increased mileage provided by the cars. (Annexure I) Hughes, Knittel, & Sperling concluded in their study that “results suggest that technologies and policies for improving vehicle fuel economy may be increasingly important in reducing U.S. gasoline consumption." (2006)The same concept leads the car manufacturers to concentrate their attention on electric cars. The depleting natural resources and their increasing cost make the industrialists to concentrate on alternative renewable energy sources. The price elasticit ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Elasticity Research Paper Example | Topics and Well Written Essays - 2000 words”, n.d.)
Retrieved from
(Elasticity Research Paper Example | Topics and Well Written Essays - 2000 Words)
“Elasticity Research Paper Example | Topics and Well Written Essays - 2000 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document


Importance of the Elasticity of Demand

...of demand is defined as the percentage change in demand caused by a percentage change in consumer price (Mankiw and Taylor 2006). For example, if the price elasticity of cigarette demand was -0.5 percent, a one percent increase would cause a 0.5 percent decrease in demand. Elasticity indicates stretch and flexibility. The flexibility or the price elasticity of demand will change depending on the commodity (Pindyck and Rubenfeld 2001). Price elasticity can also measure the willingness and ability of an individual consumer to pay for a good. Individuals with lower incomes are likely to have lower price elasticity, because they have less money to spend. An...
6 Pages(1500 words)Essay

Price Elasticity Of Demand

... responsive to price changes. The demand for these products is said to be relatively inelastic. (Daly H.E, 2004 p146) The degree of price elasticity or inelasticity of demand is measured by the coefficient of elasticity. (Pindyck, R. S and Rubinfeld, P. L, 2005) It can be defined as; The percentage changes in the equation are computed by dividing the change in quantity by the original quantity demanded and by dividing the change in price by the original price. (Boyes, W. J, and Melvin, M, 2008p84)Therefore, the formula can be restated as; There are two main reasons why we use percentages instead of absolute amounts. They are; If absolute changes are used, the choice of units will be arbitrary affect the impression of the consumers...
5 Pages(1250 words)Term Paper

Price Elasticity of Demand

...demanded, the market will be at equilibrium price and quantity. Since the demand for corn is up it means demand for corn oil is also up hence quantity demanded is higher than quantity supplied. The buyers will compete for the available corn oil hence pushes the prices up. Baumol & Blinder (2009 p 57) argues that quantity demanded is also dependent on; income, tastes, price of other products and population size. If price of corn oil goes up, buyers in response to price change will cut quantity of demand of corn oil to alternative sources of energy which are cheaper especially if price elasticity of demand of corn is high. If buyers have increased income and have high income elasticity they buy more corn oil thus increasing demand and...
2 Pages(500 words)Assignment

Elasticity of Demand: A Close Investigation

...mathematically in the following manner (Depken 2006:74): Price elasticity differs for different commodities. Usually, it varies on a scale of zero to infinity where possible cases can be equal to zero, unity, less than and greater than one (Figure 1). These cases are called degrees of price elasticity of demand which are briefed as below (Mankiw 2008:93): Unity elasticity (ε= 1) Change in demand is exactly equal to the change in price. Examples in this category include education, housing, movies and radio and television services (Anderson et al. 1997). High elasticity (ε> 1) Change in demand is more than change in price. For example, airline travel, restaurants,...
6 Pages(1500 words)Essay

Concepts of Supply and the Elasticity of Demand

... goods and services has a very inelastic price elasticity of demand, the actual level of demand that consumers express bears little relation to the price that is being offered for the commodity. Figure 1.0 Source: Marban, Zwaan, Grigoriev, Hiller, & Vredeveld, 2012 This particular graph is indicative of an elastic demand curve. It is important to bear in mind that the demand curve is not steeply sloping; rather, it exhibits a gradual decline as price fluctuates. Naturally, determinants such as consumer time horizon will greatly impact the total elasticity that is represented in the above representation by elongating and flattening the demand curve as a result of the fact that the consumer believes that the cost is likely to change within...
9 Pages(2250 words)Essay

Use the concept of elasticity as applied to demand, supply, and income to explain why firms may have different pricing strategies and why they may react differently to a price change by a rival Use real world examples to demonstrate your answers

... been noted that firms often develop diverse set of strategies in order to meet the demands of the customers and deal with the fluctuating nature of business market. In this regard, one of such strategies of the companies can be found to develop diverse pricing strategies for complying with the changing demand as well as supply trends of the customers (Pasmore, 1994). The discussion of this particular essay will focus on depicting the reasons about why firms in the modern day scenario practice different pricing strategies through using the conceptions of elasticity of demand, supply and income with the assistance of real world or practical examples. Discussion The perception of ‘elasticity’ is regarded as the ratio of the percentage change...
5 Pages(1250 words)Essay

Use the concept of elasticity as applied to demand, supply, and income to explain why firms may have different pricing strategies and why they may react differently to a price change by a rival Use real world examples to demonstrate your answers

...Macro & Micro economics By Due The concept of elasti holds great importance in pricing strategies. It measures the degree of responsiveness to a change. Price elasticity calculates the change in demand with a unit change in price (Marshall, 1890). In an economic system, every firm wants to maximize its profit and minimize its total cost. There are different types of market in an economy and the decisions made by firms vary according to the market in which they operate. In perfectly competitive markets, a change in price draws immediate response from the competitors. Firms face perfect elasticity in perfect competition. They are price takers and cannot change it. If a firm raises the price of its product, the demand for its product lowers...
4 Pages(1000 words)Essay

Health Demand, Elasticity, Principle and Agent in Determining Demand for Medical Care

...Step Health Demand, Elasti Principle and Agent in Determining Demand for Medical Care" Please respond to the following: From the e-Activity, compare the primary individual factors that influence demand, and explain the significant ways in which each affects the demand curve. Provide at least one (1) example of these factors to support your rationale. It is important to note that, unlike conventional goods, the demand for healthcare products are driven by several unique factors. Two of these factors include patient characteristics and healthcare providers/physicians. These then are included with the four primary factors cited in the text that traditionally drive demand for goods and services, namely, price, taste, expectation... Health Demand, ...
2 Pages(500 words)Coursework

Elasticity of Demand

...elasticity of demand for a good is inelastic (|Ed| < 1), the percentage change in quantity demanded is smaller than that in price. So, 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. As an example; Company W produces a product called a widget. Company W sells their widgets for $10 and there is a demand of 10. The company had tried to raise the price to $20 previously, and the demand lowered to 5 they also changed the price to...
3 Pages(750 words)Assignment

The Concept of Elasticity in Business

...that are significant for investors while analyzing the operating environment. It helps them to determine the response of consumers on a shift in the prices of a commodity. The most significant role elasticity plays in a business is helping the investor to set the prices of commodities. An effective pricing strategy is significant in maintaining competitiveness in the market as well as maintaining a large consumer base. It requires knowledge regarding consumers as well as competitors. Data on price elasticity of demand can be used to make predictions regarding future sales (Vaishampayan 2007 p 36). Elasticity quantifies the receptiveness of demand for commodities to price changes....
6 Pages(1500 words)Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Research Paper on topic Elasticity for FREE!

Contact Us