Eco 365 Final

Price Elasticity of Demand is the percentage change in quantity demanded relative to a percentage change in price.

Price elasticity is an important concept to understand when beginning and maintaining a business that distributes goods or services. Elasticity is the economic concept that estimates when products should be introduced to consumers, and how (provided that all other variables remain constant) demand or supply will be affected by changes in the environment that affect price (Basic Economics, 2007-2010). Depending on how the percentage demanded/supplied is affected by price differentiation will determine whether or not a good or service is considerably elastic or inelastic, providing a sound guideline for business owners. The higher the elasticity, the more the demand will change if the price varies in the competitive market. Elasticity

Elasticity of demand is the relationship between the demands for a product with respect to its price. Generally, when the demand for a product is high, the price of the product decreases. When demand decreases, prices tend to climb. Products that exhibit the characteristics of elasticity of demand are usually cars, appliances and other luxury items. Items such as clothing, medicine and food are considered to be necessities. Essential items usually possess inelasticity of demand. When this occurs prices do not change significantly.

1. On Market Failure – We said that the rationale for public policy is either market failure and/or government failure. Address the following with this rationale in mind:

Elasticity of demand is a measure of responsiveness to a price change of a good or service. When demand is elastic, the percentage of a price change of a product will result in a larger percentage of quantity demanded (McConnell, p 77). It basically means reducing the price of a good service will result in a greater quantity demanded and an increase in revenue for the seller. When demand is inelastic, a change in price will result in a reduction of quantity demanded, which will then lead to a revenue decrease (McConnell, p 77). To demonstrate elastic and inelastic demand results, Company A sells 100 pens at $1.00 a piece each day, making their revenue $100.00. Company A

Discussion 1: Elasticity. Analyze the determinants of the price elasticity of demand and determine if each of the

Elasticity of demand is a variation in price depending on the demand of a good or service. Items like vehicles, appliances, jewelry, and electronics will sell less at full price than they do when there is a drop in price. When producers and retailers drop the price enough for the market to take notice, people react in deciding to purchase the good or service. This reaction and sensitivity to the market is known as Elastic demand.

According to Colander (2010) Price Elasticity of Demand can be defined as “the percentage change in quantity demanded divided by the percentage change in price:

Comparative advantage in economics is when a country can produce a good at a lower opportunity cost relative to other producers. It is because of this theory that output will increase because a producers within a country specializes Countries will gain the ability to maximize their efficiency and their labor force which facilitates mass-production of products, resulting in higher profits and international trade. This is because the economies of scale reduces overall cost, by producing more units. If the two countries moved towards protectionism and attempted to become self-sufficient then the production of goods would then

Comparative advantage states that the division of labor should operate freely, without outside interference, because some countries, people, states, etc., have special advantages over the others, that allows them to produce certain goods more

When markets failure occurs, it will eventually affect economic recession, social unemployment rate to increase, financial deficits, and inflation and so on. In order to seek full employment, price stability, maintain economic growth and international revenue as well as expenditure in balance; government will launch a series of economic policies to intervene the market economy and to correct market failures. Government policy is a kind of coercive force which is a noticeable act that controlled by individuals and organizations' performance during the trade. Market failure exists when the competitive outcome of markets is not satisfactory from the point of view of society. What is satisfactory nearly always involves value

The concept of elasticity considers the responsiveness of supply or demand in relation to changes in price of

Additionally, time and budget percentages are variables of elasticity price. The longer a consumer has to look for an option to buy the good will determine the effect of the result to elasticity price. A product that requires a large percentage of the consumer’s budget will make the good elastic. The above variables are examples of how necessity of a good can affect the price elasticity of a product.

Price elasticity of demand is an economic measure that is used to measure the degree of responsiveness of the quantity demanded of a good to change in its price, when all other influences on buyers remain the same.

Comparative advantages calculate opportunity costs involved with the overall production of the good or service. The absolute advantage refers to the ability to produce a good or service at a higher quantity than the competition, while at the same time utilizing the same amount of resources. This can also be stated as the ability to produce the same amount of goods or services using less input than the competition.