Inelastic: Reggae, Electricity And Medical Procedure

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.

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

14. When the price increases from $4 to $6 and the quantity demanded decreases by 2 units, the price elasticity of demand is

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).

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.

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.

When facing an inelastic demand curve, a profit maximizing businessman would always raise price because increase in price will bring about increase in total revenue. On the other hand, when facing an elastic demand curve, he might or might not raise price because increase in price will bring about decrease in total revenue.

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.

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

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.

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

The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price.

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 a good is a necessity it is something that is needed; unlike a simple desire to have something. These items have more of an inelastic demand even if the prices fluctuate. Wheat is a rich commodity in our country. The demand for wheat is inelastic. No matter how high the price rise the demand will still remain high in view of the fact that the price is determined by supply and demand. There are many producers of wheat which does not raise the profit level much for the farmers since their competition are all selling identical products. Other items, such as; basics in personal care, food, commodities, and medicine. The basic items that are needed to survive. Demands for these items may change over time but will not change very much. Their value can fluctuate if there are comparable substitutes available. Personal care items such as clothes and shoes are not in a single category where choices are concerned. There are a wide variety of manufactures and stores that sell them. So if the price raises the demand would be elastic because of substitutes. Food as a basic need is inelastic. However, if the prices were to rise on beef consumers could choose to substitute eating chicken, turkey, or pork instead. So even though the prices rose the demand would not increase because of acceptable substitutes. Medical service as a necessity is inelastic in demand. This is a service that is unquestionably needed for survival.

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.