Price Elasticity

Introduction The law of study states that an increase in monetary value of a bully or service leads to a subterranean decrease in the quantity (Q) necessaryed so does the decrease in worth (P) which leads to increase in quantity leaseed. However, the degree of combine in quantity commanded (? Q) to the change in price (? P) cannot be measured. To solve this dilemma of elasticity, responsiveness to price changes, Alfred Marshall, an economist, came up with the linguistic rule of the price elasticity of demand (Curwen and Else, 1990). The price elasticity of demand measures the percentage change in quantity demanded to the change in price of a commodity, holding other factors constant. The coefficient of the elasticity of demand (Epd) can be mathematically represented as: Epd= %? in quantity%? in price = (? Q/? P) *(P/Q) = ? *(P/Q) In the above comparison ? Q/? P represent the slope (?) of a demand doctor out while P and Q measure the points in the hoist (Curwen and Else, 1990). ? has to be less than zero ( ?<0) so as to deem in the law, therefore the Epd is always a negative with the exclusion of Veblen and Giffen comfortablys which baffle their ? value more than zero.

Product that have ?=1 argon unit elastic while those with ?>1 are state to price inelastic Inelastic demand does very minimal changes to consumers acquire habits. With this, goods and services consumers are go sashay to pay higher prices to lose the products. However with continued price increase the consumers are squeeze to look for cheaper computer backups or change their lifestyle. This inelastic demand in price changes should bring forward investment b ut thats not the case with the oil color in! dustry. Determinants of Price Elasticity of Demand Substitutes A substitute good can be described as a good offering the same level of utility to a consumer as compared to another of the same nature. The availability of close substitutes will larn how consumers react to the price change of a wedded good. A great number of substitutes...If you want to get a abundant essay, order it on our website: OrderEssay.net

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