Elasticity of Demand
Elasticity of Demand|
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Contents
Elasticity of demand 2
Elasticity coefficients 3
The differences between the three terms 4
More or less elastic 5
Examples 6
Perfectly inelastic and perfectly elastic demand 8
Graphs for Elasticity of Demand 9
References 13
Elasticity of demand
Elasticity of demand is the measurement of change in the price of a product. It measures the percentage change in the quantity demanded caused by a percent price. There are three areas that need to be explored when inquiring about elasticity of demand. First, when the price of merchandise is lowered, how much more merchandise would sell. Second, if you raise the price of the merchandise, how much less merchandise would sell. Third, the merchandise is limited so will people scramble to obtain the merchandise. Elasticity of demand measures the extent of movement along the demand curve.
Cross-price elasticity of demand measures the percentage change for a particular item caused by the price change of another item. These items can be complements or substitutes. The change in price can cause the demand curve to shift and reflect the change in demand for the item. Cross price elasticity measures how far and which direction the demand curve will shift. A positive cross-elasticity means the items are substitute goods. If two items are substitutes, consumers will purchase more of one item when the price of the substitutes increases. If the two items are complements, the price will rise in one item and cause the demand for both items price to fall. The cross-price elasticity of demand for a substitute item will always be positive because the demand for that item will increase in price if the price for a similar item increases and everything else remains the same. Complements will be negative if the price of an item increases and everything else remains the same, the quantity demanded for that item will drop because the consumer will purchase fewer items.
Income elasticity
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Contents
Elasticity of demand 2
Elasticity coefficients 3
The differences between the three terms 4
More or less elastic 5
Examples 6
Perfectly inelastic and perfectly elastic demand 8
Graphs for Elasticity of Demand 9
References 13
Elasticity of demand
Elasticity of demand is the measurement of change in the price of a product. It measures the percentage change in the quantity demanded caused by a percent price. There are three areas that need to be explored when inquiring about elasticity of demand. First, when the price of merchandise is lowered, how much more merchandise would sell. Second, if you raise the price of the merchandise, how much less merchandise would sell. Third, the merchandise is limited so will people scramble to obtain the merchandise. Elasticity of demand measures the extent of movement along the demand curve.
Cross-price elasticity of demand measures the percentage change for a particular item caused by the price change of another item. These items can be complements or substitutes. The change in price can cause the demand curve to shift and reflect the change in demand for the item. Cross price elasticity measures how far and which direction the demand curve will shift. A positive cross-elasticity means the items are substitute goods. If two items are substitutes, consumers will purchase more of one item when the price of the substitutes increases. If the two items are complements, the price will rise in one item and cause the demand for both items price to fall. The cross-price elasticity of demand for a substitute item will always be positive because the demand for that item will increase in price if the price for a similar item increases and everything else remains the same. Complements will be negative if the price of an item increases and everything else remains the same, the quantity demanded for that item will drop because the consumer will purchase fewer items.
Income elasticity
References: Brue, S. L., Flynn, S. & McConnell, C.R. (2012). Economics (19e.). New York, NY: McGraw-Hill.