Elasticity Of Demand And Supply

First, a quick review of Price Elasticity of Demand from lecture on 02/19/09. The definition, of Price Elasticity of Demand (PED) is: Price Elasticity of Demand = Percentage Change in Quantity Demanded = %ΔQD Percentage Change in Price

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.

Elasticity means flexible, and means there are substitute for that product. An elastic product would be Diet coke, when the price of Diet coke goes up, others would drink other kind of sodas, such as Diet Pepsi.

In this paper, we examine Happy Pet Clinic, a local veterinary clinic, and how the principles of elasticity of demand might frame its pricing decisions and planning. As a small practice, every change the managers make can have a significant impact on the clinic 's income. Price Elasticity of Demand, Cross Price Elasticity of Demand, and Income Elasticity of Demand concepts can be used to analyze and estimate how prices changes may affect the clinic 's bottom line

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 measured as the percentage change in quantity demand 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).

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.

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.

Elasticity: When a consumer is in greater need of resources, there is a smaller chance for price change. However, when goods and services are in less demand as a necessity, price change will not affect the economy as much. Elasticity is based on the change of supply and demand of goods and services that a society is in need of. (Investopedia)

Every day people use products without thinking about the significance of that particular product. Many people do not realize how important these products are and how much one product that is used every day affects the economic status of not only the country but the world. Wheat is used to make a large number of products which include beer and bread. The next few pages of this report will discuss how supply and demand for wheat shifts, how it affects price, and whether or not wheat is a luxury or a necessity will also be analyzed.

Elasticity of demand represented as “Ed” is defined as a “measure of the response of a consumer to a change in price on the quantity demanded of a good” (McConnell, 2012). Determinants for elasticity of demand would include the substitutability of a good, proportion of a consumer 's income spent on a good, the nature of the necessity of a good and the time a purchase is under consideration by the consumer. Furthermore, elasticity of demand is calculated with this formula:

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.

Ans.1. The price elasticity of demand is not the same for all commodities. It may be or low depending upon number of factors. The factors which influence price elasticity of demand, in brief, are as under: