EGT 1 Task 2

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Running head: EGT1 Task 2

EGT1 Task 2 Elasticity

Western Governors University

Element A: Elastic Demand, Inelastic Demand and Unit Demand Understanding the law of demand pertaining to the elasticity of demand with other things equal measures consumers’ responsiveness or sensitivity to change in price of a product. The measuring of the degree of change or percentage of change will result in either elastic, inelastic, or unit demand. Elastic demand or “elasticity means the extent to which the quantity demanded changes when there’s a change in the price of a good” (Thinkwell, 2013). A product is considered elastic when the change in price increases the percentage change in quantity demanded. When
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For example, if the price of spaghetti sauce increases then the demand for the spaghetti noodles will decrease. If the price of spaghetti sauce decreases then the demand of spaghetti noodles will increase. Therefore, when the output of the cross price elasticity formula results in a negative coefficient means that the products are complementary goods.
Element C: Income Elasticity Income elasticity of demand is used to measure how consumers respond to changes to their income and their buying power or demand of a product. To better understand how changes of income affect consumers decisions to either buy less of a specific product or more of a specific product we use the income elasticity formula. The income elasticity formula is to divide the percentage change of the quantity of a particular product demanded over the percentage of change in a person’s income. The answer will result in either a positive or negative coefficient with a threshold of zero. If the results are a positive coefficient then that specific product is considered a normal/superior good; if the results are a negative coefficient that product is considered an inferior good. Normal goods or superior goods are those products that follow changes in a person’s income. When applying the formula of income elasticity to normal good’s the coefficient will be positive meaning the consumer will demand more of these goods as income rises. However, if the consumer’s

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