The three goods for which the demand is inelastic is gasoline, electricity and medical procedure. The reason why they are inelastic is because if the prices for these three goods increase significantly the consumers buying behavior is unchanged and the quantity demand is not affected. Furthermore, these good would never go on sale because consumers have fewer options and it a necessity that people can’t live without. I don’t see a reason for putting gasoline for example on sale because if you lower the price of this good nothing will change everything stays the same. I think the relationship between elasticity and total revenue does help me understand why some goods go sale and why others don’t because elasticity looks at the impact of price
When I decided to go back to school and I found that online school format fit my life and schedule best there was one item I needed to purchase before going forward and that was a computer, or in my case a laptop. A laptop is also a substitute for a computer. I chose the laptop because I am constantly running around with my three kids and I like having the ability to take the laptop with me so I can still get things done. In this case purchasing a laptop was a necessity. Understanding this helps to understand the elasticity or inelasticity in a product. Since the laptop was a necessity, no matter what the cost was going to be, I still needed to make the purchase; therefore, leaving my purchase as a price that was inelastic. Had my purchase not been deemed a necessity and more of a luxury I would have had some leniency on the price causing there to be some elasticity to the price.
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).
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
When there is a large increase in the price of a product in the short run it results in inelastic demand because there is little time to adjust to the increase and find an alternative product. Let’s say the consumer uses the local bus service to go to work. On the way to work one day he notices that the prices of transportation will double beginning tomorrow. In the short time he may be forced to continue paying the higher prices until he can find alternative transportation. As time passes, the consumer can make alternative choices such as carpooling, working from home, or riding a bike to work; therefore, the cost increase for the transportation would be elastic.
14. When the price increases from $4 to $6 and the quantity demanded decreases by 2 units, the price elasticity of demand is
The short run and long run demand for gasoline is inelastic because the prices of gasoline increases and do not decrease too much due to people are going to buy gasoline whether the cost is high or not because people need it to travel to their destinations. Therefore, substitutes for gasoline and also consumers are buying the gasoline even though the price is high. Inelastic is different from elastic because inelastic demand will not rise or fall depending on the price.
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.
* Analyze the determinants of the price elasticity of demand and determine if each of the following products are elastic or inelastic:
When the demand for a good or service decreases due to an increase in the price it is considered elastic. However, if a price of a good or service increases and demand remains the same regardless of how high it increases it is inelastic. An elastic good in my life would be my hair products, makeup products, school books, juice, and clothes. I considered this and elastic good in my life because there are many substitutes available. For example, I can choose between a drugstore mascara or mascara from Sephora, also I can choose between buying the online version of a textbook or a used textbook from Chegg. An inelastic good in my life would be my concert ticket, phone service, and gas. My concert ticket to the Trap Circus is inelastic because
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
When the elasticity of demand is elastic, the change in quantity will be greater that the change in price. Hence, the total revenue will reduce with increasing prices and increase as prices decrease. However, if the business offers goods or services with inelastic price elasticity of demand, then the change in quantity demanded will be smaller than the change in price. Consequently, the total revenue, which is a product of the two will increase when
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.
Explain the relationship between the price elasticity of demand and total revenue. What are the impacts of various forms of elasticities (elastic, inelastic, unit elastic, etc.) on business decisions and strategies to maximize profit? Explain using empirical examples.