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Elasticity of Demand: A Close Investigation - Essay Example

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The writer of the current essay seeks to examine the concept of price elasticity introduced by Dr. Marshall. Furthermore, the assignment reveals an in-depth analysis of the topic, discussing the determinants of price elasticity of demand and describing its components…
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Elasticity of Demand: A Close Investigation
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Elasticity of Demand: A Close Investigation

Download file to see previous pages... 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):
According to Stonier and Hague, “income elasticity of demand shows the way in which a consumer’s purchase of any good changes as a result of a change in his income” (Lekhi 2007:45). Thus, income elasticity represents the ratio of percentage change in quantity demanded to a percentage change in income and is expressed as:
An example illustrating income elasticity of demand is supposed when our monthly income is $ 500; the demand for ice-creams is of 10 units. However, if monthly income rises to $ 1000, the demand for ice-cream units also rises to 20 units. Thus, income elasticity, in this case, would be 2 (greater than 1).
The income elasticity of demand is usually positive for wines, quality chocolates, mobile phones, leisure facilities and other luxury items. However, it is low for staple foods and mass transportation (Tutor 2u n.d).
Nature of commodity- commodities also vary according to their categories. Price elasticity of necessary commodities of life is usually inelastic as people will buy them regardless of a change in price. Rice, salt and food grains fall into this category. Demand for luxury goods is elastic as people buy more of them at lower prices and vice versa. However, luxury to a poor man can be the necessity to the rich. Hence, this thing has to be expressed carefully.
A number of uses- demand is said to be elastic if it is put to multiple uses and inelastic if it is confined to a single use. Multiple-use goods are found to have more elastic demand.  ...Download file to see next pagesRead More
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