Classification of Price Elasticity of Demand - 2147 Words

Classification of Price Elasticity of Demand 1. Price Elastic Demand (% ΔQd % ΔP) Ï µ 1 If the value of price elasticity coefficient is greater than one in absolute value. This means that a small change in price results to a greater change in quantity demanded. Goods which are elastic tend to have some or all of the following characteristics: They are luxury goods They are expensive and a big % of income e.g. sports cars and holidays Goods with many substitutes and a very competitive market. E.g. if Simsbury’s put up the price of its bread there are many alternatives, so people would be price sensitive Bought frequently Graph: We say a good is price elastic when an increase in prices causes a bigger % fall in demand. e.g. if price†¦show more content†¦For example, if Sky increase the cost of premiership pay per view, many football fans will pay the extra price. Though because it isn’t a necessity, demand may be less inelastic than say petrol. Tap water. For householders, tap water is a necessity, with no alternatives. If the water company increase the cost of water bills, people would keep buying the service. It would have to rise to a very high price before people disconnected their water supply. This is why tap water is regulated. Diamonds. Bought very infrequently, diamonds are the ultimate luxury with few exact alternatives. You could buy other precious gems, but others may not have the same allure as diamonds. A cut in price wouldn’t increase demand very much. Peak rail tickets. For commuters who rely on the train to get to work in London, demand will be very inelastic. If price of fares from Surbiton to London increase, demand will only fall by a small amount. The alternatives for commuting into London, such as driving are limited. Apple iPhones, iPads. The Apple brand is so strong that many consumers will pay a premium for apple products. If the price rises for apple iPhone, many will continue to buy. If it was a less well known brand like Dell computers, you would expect demand to be price elastic. References: http://www.economicshelp.org/blog/7019/economics/examples-of-elasticity/ 3. Unitary Elastic Demand (% ΔQd = % ΔP) Ï µ 1 If the value of elasticityShow MoreRelatedPrice Elasticity of Demand and Supply1102 Words   |  5 Pagesin making price and output decisions. Price Elasticity of Demand The price elasticity of demand measures the sensitivity of the quantity demanded to price. The price elasticity of demand is the percentage change in quantity demanded brought by a 1 percent change in price. The value of price elasticity of demand for a normal good must always be negative, reflecting the fact that demand curves slope downward because of the inverse relationship of price and quantity. The price elasticityRead MoreSupply and Demand and Academic Honesty Policy Essay1057 Words   |  5 Pagesestimate the price elasticity of demand for certain goods, some of which are reported on page 176 of the Hubbard/O’Brien textbook. The following table presents select elasticity of demand estimates from those reported on page 176. Product Barnes Noble books Coca-Cola Cigarettes Beer Gasoline -4.00 -1.22 -0.25 -0.23 -0.06 Estimated Elasticity In your project, address the following questions: Using the elasticity estimates in the table above, classify the price elasticity demand as elastic orRead MoreElasticity of Demand and Supply1412 Words   |  6 PagesElasticity is the reaction of demand or supply due to some changes. Demand elasticity is the change in demand which happens in a result of a change in other variables. It helps the organisation to calculate the change in demand in case other variables change. There are three factors that can affect demand. 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The characteristics of a market that is competitive would include: a large number of buyers and sellers, easy entry to and exit from the market, homogeneous products, and the firm is a price taker. Take McDonalds fast food restaurant for example. In 1954, Ray Kroc became the first franchisee appointed byRead MoreChina s Trade Imbalance With A Firm Level Data Set Compiled By Chinese Exports1183 Words   |  5 Pagesin the exchange rate however depends on the magnitude of the ERPT and on the price elasticity of Chinese exports and imports. An appreciation of the Chinese renminbi is more likely to cause a fall in Chinese exports if the exchange rate pass-through is complete. The few papers that examine the ERPT for China with a firm-level data set compiled by the Chinese Customs Statistics mainly focused on exchange-rate elasticity of exports (Liu et. al, 2013; Tang and Zhang, 2014). Tang and Zhang (2014)Read MoreQnt-3511425 Words   |  6 Pagesstores. This could also be related to policy and / or employee attitudes. My classification of the market structure Kudler operates in is a â€Å"Monopolistic Competition.† My classification is based the fact that there are many producers of the various types of goods that Kudler sells, but Kudler tries to identify those unique (although similar) products that cannot be found anywhere else for offer to the public at premium prices. The characteristics of Kudler as a monopolistic competition can be attributed