Economics College - Research Paper Example

Example of cigarette consumption by a die-hard smoker who hardly changes his smoking habit and consume as many number of cigarettes as he smoked earlier in spite of the bigger rise in its price. Unitary Elastic demand curve that may be sloping down uniformly in such a way to register equal proportionate increase or decrease in demand for a good in response to given proportionate fall or rise in its price 1.1 Demand for necessities and luxury in daily life. The rise and fall of prices of essentials makes no differences in demand pattern at least for short period.

Similarly the rise in the prices of luxurious goods does not affect their demand because of the income status of the consumers in that segment is high enough to reduce the demand. 1.3 : In case the commodity has a substitute the increase in the prise of the primary one will lead consumers to shift to the substitute. In this case the demand will remain relatively elastic and the demand curve will slope down. The tea price being raised consumers would readily shift to coffee provided it satisfies the taste. 1.4 Technological changes in the product make the consumers unable to or difficult to shift its demand for cheaper or better good.

Here the demand remains relatively inelastic to the change in price. . Consumers are already using some other non electrical goods or geared to other system. Increase of electricity consumption depends upon buying and using more sophisticated electrical gadgets. Buying is not a function of electricity price but the income and need.1.5 Imperfect knowledge about market is a factor that accounts for price inelasticity of demand in which condition the fall in price of a commodity would not lead rise in demand for that good in the short run because consumers are not aware about the change.

This would not enable the demand curve to fall in short time at least. B. The effect of unitary elastic demand defined above for good in response to change in price term on total revenue is neutral because there would be equal and proportionate change in demand for goods in response to the given proportionate change in price. The amount spent on that particular good would be same as before the price change as shown in the following chart1 and diagram1:When the elasticity is unitary the demand for good changes from PQ to P1Q1 at the fall of price in such a way to spend the same amount of money to buy higher quantity P1Q1 to satisfy.

Here the out lay of PROQ is equal to P1R1OQ1Chart 1Total Outlay methodElasticity=1Price $Demand/no.Outlay/$107070051407002350700 Chart 2Total Outlay methodElasticity.>1Price $Demand/ no.Outlay/$1070700517085025001000Chart3Total Outlay MethodElasticity