Egt Task 309.1.2-08, 09
Task A:
1. Elasticity of demand (Ed): A measure of the response of a consumer to a change in price on the quantity demanded of a good (McConnell, Brue, & Flynn, 2012, p. 76). Determinants include substitutability of a good, proportion of a consumer 's income spent on a good, the nature of the necessity of a good, and the time a purchase is under consideration. It can be calculated with the following formula: Ed = percentage change in quantity demanded of product X percentage change in price of product X
2. Cross-price elasticity (Exy): A measure of the response of a consumer to a change in price in one good on a change in quantity demanded of another good, either a substitute good or a complementary good. The cross-price elasticity of a substitute good is positive; conversely, the cross-price elasticity of a complementary good is negative. It can be calculated with the following formula: Exy = percentage change in quantity demanded of product X percentage change in price of product Y
3. Income elasticity (Ei): A measure of the response of a consumer to a change in the income of consumers has on the quantity consumed of a good, either more or less. Most goods are considered normal goods, also called superior goods. The income elasticity of demand for normal goods is positive since the amount demanded of normal goods rises when incomes rise. Oppositely, the income elasticity of demand for inferior goods is negative because the demand for these goods falls as incomes rise. It can be calculated with the following formula:
Ei = percentage change in quantity demanded percentage change in income
Task B:
1. If the elasticity of demand coefficient is zero, then the demand is perfectly inelastic. Consumers demand had no response to a change in the price of a good. When consumers respond to a change in price, the demand is elastic if the elasticity of demand coefficient is greater than one, or when the change in price of a good causes a
1. Elasticity of demand (Ed): A measure of the response of a consumer to a change in price on the quantity demanded of a good (McConnell, Brue, & Flynn, 2012, p. 76). Determinants include substitutability of a good, proportion of a consumer 's income spent on a good, the nature of the necessity of a good, and the time a purchase is under consideration. It can be calculated with the following formula: Ed = percentage change in quantity demanded of product X percentage change in price of product X
2. Cross-price elasticity (Exy): A measure of the response of a consumer to a change in price in one good on a change in quantity demanded of another good, either a substitute good or a complementary good. The cross-price elasticity of a substitute good is positive; conversely, the cross-price elasticity of a complementary good is negative. It can be calculated with the following formula: Exy = percentage change in quantity demanded of product X percentage change in price of product Y
3. Income elasticity (Ei): A measure of the response of a consumer to a change in the income of consumers has on the quantity consumed of a good, either more or less. Most goods are considered normal goods, also called superior goods. The income elasticity of demand for normal goods is positive since the amount demanded of normal goods rises when incomes rise. Oppositely, the income elasticity of demand for inferior goods is negative because the demand for these goods falls as incomes rise. It can be calculated with the following formula:
Ei = percentage change in quantity demanded percentage change in income
Task B:
1. If the elasticity of demand coefficient is zero, then the demand is perfectly inelastic. Consumers demand had no response to a change in the price of a good. When consumers respond to a change in price, the demand is elastic if the elasticity of demand coefficient is greater than one, or when the change in price of a good causes a
References: McConnell, C. R., & Brue, S. L., Flynn, S. (2012). Economics (19th edition). New York, NY: McGraw-Hill. Recession. (n.d.). Retrieved July 6, 2012 from the Wikipedia: http://http://en.wikipedia.org/wiki/Recession Perfectly Elastic. (n.d.). Retrieved July 7, 2012 from AmosWEB Encylconomic: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=perfectly+elastic