The Price Elasticity Of Demand

968 WordsJan 24, 20164 Pages
Price elasticity of demand is defined as a measure of “the responsiveness or sensitivity of consumers to changes in the price of a good or service” (Thomas & Maurice, 2012, pp. 199). Mathematically, the price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. Demand is said to be elastic whenever the absolute value of the percentage change in quantity demanded exceeds the percentage change in price, which means the absolute value of the elasticity would be greater than one. If the absolute value of the price elasticity of demand is less than one, the demand is said to be inelastic, or less sensitive to the price change. There are various factors that affect the price elasticity of products, in the following sections these factors will be applied to the demand of desktop computers. 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

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