EGT1 - Task 2 Essay

“The Cross-price elasticity of demand measures the rate of response of quantity demanded of one good, due to a price change of another good” (Economics.about.com,

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.

Price elasticity that relates to demand is determined by many factors. Price elasticity is measured by the change in price and the response from consumer demand. The demand of a good or service will vary the price in the item. The most important factor to determine the price elasticity of demand is necessity. If a good is a necessity, the demand will seldom change and the price is able to be adjusted. The demand is the most important due to the freedom it provides for price adjustment and inventory control. With necessity comes an inelastic price. Other factors such as the

Elasticity : rising or falling price lead changes in quantity of demand, and the quantity of supply and this so-called elasticity

Identifying whether a good has an elastic demand or inelastic demand is determined by the necessity or desire of the good. Luxuries are goods that consumers desire, but not necessarily need. A product on the market considered a luxury is the new curved television. While there are several brands that are manufacturing this type of tv, the willingness to purchase is up to the consumer. It is not a necessity. Individuals with higher incomes might be willing to purchase while consumers with lower incomes will wait to purchase when the price decreases or to not purchase the tv. Utilities are needs that are considered inelastic. As the price of the utility increases due to increased taxes and service fees, the need for the utility will not change

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.

Price elasticity of demand enables business organizations to predict how their total revenue will be effected in the event they change the prices of their products. When a given good has inelastic price elasticity of demand i.e. Ed 1, then the percentage change in the quantity demanded is greater that the change in price. Thus, raising the prices of such commodities results to decline in the total revenue because the business may loss customers to their competitors. Nonetheless, reducing the prices of goods with elastic elasticity of demand increases the total

The more inelastic the demand relative to supply, the more tax burden the customer will bear. For gas, in the short term, customer will cut back somewhat, but they still need gas (inelastic demand), so they will bear most of the expense. If demand were elastic, they could walk

The first factor which is the “most important determinant of price elasticity of demand” is the availability of substitutes (Thomas & Maurice, 2012, pp. 205). For any product where quality substitutes are readily available, the price elasticity of demand will be high. For example, if the price of desktop computers was to rise by 20%, the quantity of desktop computers demanded would most likely decrease by a greater percentage. This is because consumers could easily go out and purchase laptop computer or tablets to accomplish tasks for which they needed the desktop computer. Likewise, if the price of desktop computer

When the price of a good falls, the quantity consumers demand of the good typically rises; if it costs less, consumers buy more. Price elasticity of demand measures the responsiveness of a change in quantity demanded for a good or service to a change in price.

Elastic demand (elasticity) means that demand for a product is sensitive to price changes. Demand elasticity helps a company to predict changes in demand based on changes in: price, competitive goods (substitutes) and other factors such as is the item a necessity or a luxury.

Price Elasticity of Demand is the quantitative measure of consumer behavior whereby there is indication of response of quantity demanded for a product or service to change in price of the good or service ( Mankiw,2007). The Price Elasticity of Demand is calculated using either the point method or the midpoint method.

Demand elasticity means how perceptive the demand for a good is to fluctuations in other economic variables. Demand elasticity is essential as it supports firms model the possible transformation in demand due to changes in value of the good, the result of changes in prices of further goods and numerous other market factors. A firm grasp of demand elasticity benefits to direct firms regarding more ideal competitive performance. Demand elasticity is a measure of how great the capacity demanded will be different if additional factor changes. An example is the price elasticity of demand; this measures how the quantity demanded fluctuates with price. This is fundamental for setting prices so as to maximizing profit.

The price elasticity of demand which is the absolute value of -0.44, is inelastic. The price elasticity of a demand is the ratio of the percent change in quantity demanded to the percent change in price (McGuigan, et. al, 2014). An inelastic demand results when the percentage

Demand is elastic when PED > 1 (but less than infinity): The percentage change in quantity demanded is larger than the percentage change in price, so that the value of the PED is greater than one, quantity demanded is relatively responsive to price changes, and demand is said to be price elastic.