The Price Elasticity And The Income Elasticity Of Demand For Levi 's Jeans

Price elasticity of demand is a Theory of the relationship between a change in the quantity demanded of a

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.

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

Elasticity of demand is gauged by the percentage of change in demand when the price of an item varies. If the change in the quantity demanded is greater than 1 the demand is elastic.

Price elasticity of demand refers to the difference in demand as related to price. According to Douglas (2012), “Price elasticity of demand is defined as the percentage change in quantity demanded divided by

Elasticity of supply is measured as the percentage change in quantity supply divided by the percentage change in price .

There are three kinds of elasticity. There is elastic demand, where the elasticity is over 1. There is unitary elastic, where it is at 1.0. There is inelastic demand, where the elasticity is under 1 (Investopedia, 2013).

3) The ‘puzzle’ mentioned in the article is 10% increase in gasoline consumption when the gasoline prices surged by 53% from 1998 to 2004. As per Law of demand, the consumption of gasoline should have decreased with the increase in price of gasoline.

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.

Based on the above description, forms of elasticity will affect business decisions and pricing strategies differently depending on the nature and type of products or services being offered. Business organizations whose product offerings have elastic and perfectly elastic price elasticities of demand should not attempt to raise prices of their products because it will cause the quantity demanded and consequently total revenues to drop drastically. Businesses can there use the price elasticities of demand to determine whether the proposed changes in their prices will raise or reduce their total revenue. The following expression may be useful in helping business organizations to determine the impacts of elasticities on their total revenues based on the suggested price changes.

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.

When the price of a good rises the quality demanded falls, if we think about how much does it falls. To figure out by how much it falls we must calculate the price elasticity of demand which is calculate by how responsive demand is to rise in price. Also, the price elasticity of supply measures the responsiveness of quantity supplied to a change in price.

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.

Recall that the elasticity of demand, which measures the responsiveness of demand to price, is given by

An example of share of consumer income devoted to a good is sugar versus a 20 lb. bag of Pedigree dog food. If the price on these items were increased by 15%, consumers would notice the price on the dog food before the sugar. Normally, the dog food costs approximately $15 and the bag of sugar normally costs $3. The dog food’s price would increase to $17.25, while the bag of sugar would only cost $3.45. Consumers would still purchase the sugar and would have no impact on the demand; however, consumers may begin looking for substitutes for the dog food, which will begin decreasing the company’s revenue.