Environmental Issues and Elasticity - Essay Example

Specific terms such as elastic versus inelastic demand, perfectly elastic versus perfectly inelastic demand are used in classifying the demand curves. Other types of elasticity include: Cross-elasticity of demand, Income elasticity of demand and Elasticity of price expectations. This assignment seeks to conduct an in-depth evaluation of the concept of demand elasticity, determinants of elasticity plus the importance of elasticity in business; in order to gain an understanding of the concept of elasticity.

Keywords: Elasticity, Demand. Price elasticity of demand is an assessment of how much the quantity demanded varies when the price of the good changes. The terminology, price elasticity of demand is occasionally reduced to elasticity of demand/demand elasticity or simply put as elasticity. The price elasticity of demand regularly alludes to a distinct demand curve or demand schedule like the global demand for fossil fuels. The price elasticity of demand is plainly enumerated by the next formula: Price elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in price (Taylor & Weerapana, 2012).

Price elasticity of demand= Percentage change in quantity demanded Percentage change in price Every one of other factors that influence demand is seized at a constant when calculating price elasticity of demand. . it is a unit-free measure, since it uses percentage changes in price and quantity demanded (Taylor & Weerapana, 2012). In contrast, Income elasticity of demand refers to the percentage in quantity demanded of a good associated with the percentage in income of the consumer; other factors such as price of other related goods, price of the commodity, preferences of the consumer remaining constant.

Income elasticity of demand is measured using the following formula (Jain, 2007): Income elasticity of demand = Percentage change in quantity demanded Percentage change in consumer income Cross elasticity of demand refers to a measure of a change in the quantity demanded of good Y, as a result of a proportionate change in the price of good X. This scenario is evident when a change in the price of one good can cause a change in the demand of related goods e.g. a change in price of tea ordinarily causes a change in demand for coffee.

Cross elasticity of demand is measured using the following formula (Jain, 2007): Cross elasticity of demand= Percentage change in quantity demanded of good X Percentage change in price of good Y The law of demand states that a fall in price of a good raises the quantity demanded. The price elasticity demand for any good measures how willing consumers are to buy less of the good as its price rises. Since the demand curve reflects many social, economic and psychological forces that shape consumers preferences, there is no simple, universal rule of what determines the demand curve (Stonecash, 2011).

The degree to which the demand is price-inelastic or price-elastic depends on the following factors, which differ among consumers and products: (a) How many substitutes there are for a product-