An Assignment On Demand Estimation

The elasticity of demand measures the buyer’s reaction to price as its changing. “Economists measure the degree to which demand is price elastic or inelastic with the coefficient E d, defined as E d = percentage change in quantity demanded of product X/ percentage change in price of product X” (McConnell, C. 2011). Therefore, Ed=∆Qd/∆Pd. When elasticity of demand is measured less than one, demand is considered to be inelastic. The coefficient in an inelastic range is less than one. When this takes place the percentage change in price is more than the percentage change in quantity. It can be said that when inelastic demand is present that quantity becomes less effected by price changing.

There is absolutely no doubt that we are facing a serious economic downturn that is threatening the existence of many businesses here in the United States as well as abroad. Many companies much like Home Depot are formulating ideas on how to deal with price elasticity of demand or the lack there of (inelasticity). Price elasticity of demand refers to the measure of consumer response to the quantity of demand for products or services to price adjustments. The formula for price elasticity of demand is: (% change in quantity demanded)/ (% change in price), the latter is inelasticity in which is some the issues Home Depot is facing today. The supply and demand graph (See figure 4) indicates the price elasticity of demand for Home Depot: This is an example of a positive price elasticity of demand curve. Should the blue "S" supply line curve slightly to the right that would represent an inelastic supply and demand. The price elasticity graph (economagic.com) illustrates the predicament of many businesses today (University of Aberdeen, 2009).

G. Identify by price range the areas on the demand curve where demand is elastic, inelastic, and unit elastic using the attached “Graphs for Elasticity of Demand, Total Revenue.”

Price elasticity of demand refers to the difference in demand as related to price. According to Douglas (2012), “Price elasticity of demand is defined as the percentage change in quantity demanded divided by

1. When a firm measured price in dollars and quantity in kilograms, it estimated that the

You could answer this in 2 ways. (1) You could calculate the elasticity in the $15 - $10 range. This is [(100 - 40) / 140] / [(15 - 10) / 25] = [60 / 140] / [5 / 25] = 0.42 / 0.20 = 2.1. Since we have elastic demand in this range we know that to lower the price the total revenue will RISE. or (2) You could simply calculate the total revenue at the two prices -- at $15 total revenue is $15 x 40 = $600, and at $10, total revenue is $10 x 100 = $1000. So obviously total revenue RISES when the price is lowered from $15 to $10.

* Analyze the determinants of the price elasticity of demand and determine if each of the following products  are elastic or inelastic:

Therefore the demand for the low-calorie microwavable food is inelastic. An increase in the price of the food will cause a decrease in quantity demanded. Income elasticity of the goods calculated is 1.08, which means that the good selected is a luxury good. Changes in income could also affect the demand of this product. The cross price elasticity is 0.005. Therefore the two goods can be considered as neutral goods. The advertisement elasticity is 0.08. This indicates that advertisement has an important impact on the sales of the product. Lastly, the microwave ovens elasticity is 0.05. This is a direct correlation as sales of microwave ovens increase; demand for of low-calorie microwavable food also increases.

To find Forrester’s elasticity, I began by calculating Forrester’s market share for all periods and observed that without the change in price Forrester’s market share was always 35% of the Industry demand, I also noticed that Forrester’s demand fluctuated at the same rate as the Industry before the price change, confirming a correlation.

Based on the above description, forms of elasticity will affect business decisions and pricing strategies differently depending on the nature and type of products or services being offered. Business organizations whose product offerings have elastic and perfectly elastic price elasticities of demand should not attempt to raise prices of their products because it will cause the quantity demanded and consequently total revenues to drop drastically. Businesses can there use the price elasticities of demand to determine whether the proposed changes in their prices will raise or reduce their total revenue. The following expression may be useful in helping business organizations to determine the impacts of elasticities on their total revenues based on the suggested price changes.

Elasticity is a measure of the responsiveness of demand to changes in the price of a good or service. In the case of Steam Scot, when the price rises from 4 to 5, demand falls from 60,000 to 40,000 units. The original equilibrium market price of 4 pounds resulted in demand of 60,000 units and this generated revenue of 240,000 pounds. When the prices increased to 5 pounds the resulting demand is 40,000 units, and this generates total revenue of 200,000 pounds. When market price changes from 4 pounds to 5 pounds 40,000 pounds of revenue are lost in this indicates an elastic price elasticity of demand.

a) Determine the extent to which the supply and demand of your chosen product or service are sensitive to changes in price by applying the concept of elasticity. In other words, what is the price elasticity of supply or demand for your product or service?

When price elasticity of demand is elastic, the coefficient will be greater than one. When a percent price change occurs quantity demanded responds strongly there will be a large change in quantities consumers purchase. There is price sensitive in this scenario. If price elasticity of demanded is inelastic the coefficient will be less than one. When a percent price change occurs quantity demanded does not respond strongly then there is a slight change in quantities consumers will purchase. There a weak price sensitive in this scenario. Lastly, if price elasticity of demanded is unit elastic the coefficient will be equal to one. Whenever there is a percent change in price there is an equally matched percent change in quantity demanded. This scenario is rare.

If one firm cuts price, other firms will follow suit because they don’t want to lose market share. Therefore, for a price cut, demand is price inelastic.

The price elasticity of demand for the iPhone is different depending upon on where it is being sold. A prime example if the IPhone is being sold in the United States it is considered an inelastic demand. Most smartphones are considered a luxury item but if you compare that to the first world country, it is different. The average incomes in the United States are considered higher than most countries, therefore the price of an iPhone 5 or iPhone 6 are considered affordable. The price elasticity of demand of an iPhone in high income nations is considered inelastic. The price elasticity of demand of the iPhone in countries like, Malaysia are considered as elastic. The iPhone is considered as an elastic demand in countries where the average income is not that high compared to the first world countries. Thus, the price elasticity of demand is elastic, the price of an iPhone is considered expensive to us but the popularity of iPhone is still high so if the price of an iPhone is dropped, the demand would increase higher. The price elasticity of supply of an iPhone is considered as elastic during the early period. . The determinants of price elasticity of supply are the amount that costs as output rises, which means the lesser the additional costs of producing additional output, the more Apple will produce for a given increase. There an iPhone’s hype that slowly affected the community which mean