CHECK THESE SAMPLES OF Elasticity / Consumer choice and demand
...elasticity λ implies a higher exchangeability between the two commodities. For complementary commodities, cross-price elasticity λ is (-) and therefore, a rise in price of commodity K reduces the demand for commodity K. A larger (-) cross-elasticity λ implies higher complementary between the two commodities (Thomas, 2010).
Price elasticity of demand is also affected by the consumer time horizon (time required to analyse the effects of a price Δ). For example, the elasticity of petrol is greater in the long run than in the short run. Therefore, it may be difficult to get a substitute for petrol as many...
7 Pages(1750 words)Coursework
...? In understanding this given economic issue, we need to study the application of Law of Supply and Demand and price elasti of demand in our product markets. From there we can see how the simple tools of demand and supply can affect the prices of goods, the consumers’ spending behavior and the businesses’ decisions and the operations of the entire economic system. If the demand for corn increases due to its use as an alternative energy source, there will be a decrease in the supply of corn's substitute such as soybean. This is because change in the price of related goods is a determinant of demand (McConnell & Brue, 2002). As corn and...
2 Pages(500 words)Essay
... the increase in such demand. The price elasticity of demand is defined as the percentage change in quantity demand divided by the percentage change in price. This is the basic calculation of the price elasticity of demand. There are other factors which also need to be taken into account and one of the most fundamental aspect is whether the product that is being talked about is inelastic, elastic, highly inelastic, highly elastic, perfectly inelastic or perfectly elastic. In respect of the current facts at hand it is seen that there is a substitute for corns that is soybean, therefore the demand curve of corn would clearly be elastic and the quantity demanded of the corn would clearly be dependent upon such elasticity and due... to the...
2 Pages(500 words)Essay
...that is being marketed. Some products have a very elastic demand depending on a large number of reasons. Elasticity is mostly affected by substitution and the presence of similar products in a market reduces the demand for products that have a higher price. Pharmaceutical companies are beneficiaries of an inelastic demand as their products are usually protected under patents. The products are also usually necessary to the well being of the consumers rather than being luxuries. For this reason therefore, an increase in prices for pharmaceutical products usually does not have a large effect on the demand of the products as...
4 Pages(1000 words)Essay
...and availability of close substitutes in the same market determine elasticity of demand in that the presence of many close substitutes will lead to a huge shift in demand if prices of that commodity changes. This is because consumers have an alternative to satisfy their demand as opposed to when the commodity is unique, in which case they will have no option than to adjust to the price changes. For instance in a market with many operators like tours and travel businesses offering a wide range of packages make the operators price sensitive, since any small changes in prices from competitors can lead to massive shift in demand for their...
4 Pages(1000 words)Essay
...?introduction Price fluctuations can influence not only the producers but the consumers as well. Changes in prices cause changes in the demand and supply and therefore everyone is influenced because of changes in the price level (Hoover, 2011). Although prices can be controlled by the government but it is a complex process and there are number of factors that need to be considered to understand the changes in the price level. This report is divided into two sections; the first section of the report discusses important terminologies such as Price elasticity of demand, Cross elasticity of demand, Income elasticity of...
5 Pages(1250 words)Essay
...the degree by which demand changes as a result of a change in price. Here lies the importance of Elasticity of Demand. This concept tells us the extent to which demand increases or decreases owing to a decrease or increase in price. Therefore, Law of Demand is a qualitative measurement whereas Elasticity of Demand is a quantitative measurement.
Elasticity of Demand
As stated earlier, elasticity is a measure of responsiveness of quantity demanded for a change in price. It measures the degree to which the demand of a product responds to...
10 Pages(2500 words)Essay
...in supply and demand reflected on price in the market.
An example of elasticity happens we it is considered to know what happens to the buyer's demand for a product when prices increase. Buyers will usually buy less of that product, they can consume it less or they can substitute it for another product. "The greater the extent to which demand falls as price rises, the greater is the price elasticity of demand." (Elasticiy, 2006). In the cases where the buyers have no alternatives but to consume that product even in spite of the rise in price, for example, in certain prescription drugs, then the...
3 Pages(750 words)Essay
...The economic law of supply and demand influences a lot the movement of product and services in the marketplace. Business analyst and economist are interested in how responsive the demand is to some change in price or income a concept known as elasticity. The precise metric utilize in the industry is the price elasticity of demand which is the percentage change in quantity divided by the percentage change in price (Varian, 2003). The price elasticity of demand behaves differently depending on the market structure a firm operates in. This paper analyzes the behavior of price elasticity under monopolistic...
2 Pages(500 words)Essay
...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...
5 Pages(1250 words)Term Paper