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Price elasticity of demand - Essay Example

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Price elasticity of demand is defined as the elasticity that measures the nature and degree of the relationship between changes in quantity demanded of a good and changes in its price. ("Price") Its mathematical equation therefore is expressed by this expression:
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Price elasticity of demand
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Download file to see previous pages The resulting coefficient for such is greater than 1 (Ed > 1). In addition, the result of a decrease in the price of the good is also an increase in its total revenue, otherwise, a decrease in its total revenue. ("Price Elasticity") Therefore, an increase in the prices of apples in the market will give a corresponding decrease in the total revenue of the good. This only means that if the price of apples is increased, consumers may decide not to buy the good any longer. However, if the price of apples decreases, people will tend to buy more apples. It is also possible that the consumer will just try to find an alternative fruit instead that is cheaper than apples.
On the other hand, if the change in quantity demanded of the product along with its price is less than 1 (Ed < 1), the product is said to be inelastic. In this condition, the percentage change in quantity demanded is less than the percentage change in price. Unlike the elastic good, inelasticity means that a decrease in price will result in a decrease in total revenue and vice versa. ("Price Elasticity") Inelastic products are basically the products that belong to the basic needs of man. One example of an inelastic product would be the salt wherein even a large increase in its price, the demand would remain the same therefore there will be a relative increase in its total revenue. ...Download file to see next pagesRead More
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