Elasticity and its application

Economic coursework 5

Elasticityand its application

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Questionsquestion 1

Priceelasticity of demand is the measure of response of quantity demandedas a result of change in price. The price elasticity of demand isvital for any economists as it enables them to identify thesensitivity of the consumers to changes in price (MARTIN,2011). Additionally, it is significant in identifying how sensitive thedemand for a certain good is to the changes in price. Priceelasticity of demand (PEoD) can be calculated by the followingformula

PEoD= percentage change in the demanded quantity/ percentage change inthe price of the goods.

Question2

Theincome elasticity of demand is the measure of the relationshipbetween a change in real income and a change in the quantity demandedfor a good X. income of elasticity of demand enable the economist toidentify the change in the quantity demanded as a result of change inthe incomes of the consumers. Income elasticity of demand is oftencalculated by the following formula

Percentagechange in the demanded quantity/ percentage change in the income

Question3

Itis an economic concept that measures the sensitivity in the quantitydemand of a certain product when a change in price affects anotherproduct. The information provided by cross elasticity of demand isthat of how change in price of one of the goods affects the quantitydemanded of another good (Gardiner&amp Dixit, 2009).Cross elasticity of demand is often calculated by dividing thepercentage change in the demanded quantity of a certain good orproduct by the % change in the price of substitute good.

question4

Totalrevenue is defined as the total receipts from sales of a givenquantity of services and goods. It is often referred to as the totalincome of a business and usually calculated by multiplying the priceof the goods by the quantity of goods sold.

Question5

Demandelasticity is a significant variation on the concept of demand. Itcan be classified as unitary, inelastic or elastic. An inelasticdemand takes place when the change in the demanded quantity inrelation to change in price is small whereas elastic demand occurswhen the change in the demanded quantity in relation to change inprice is high (Tellis,2012).Unitary elasticity is a situation where a change in demand affectingcertain product results to a proportional or equal change in thedemand of another product.

Question6

Question7

&nbsp

Quantity Demanded

&nbsp

Total Revenue

Price

$4

100

&nbsp

$400

6

80

&nbsp

$480

8

60

&nbsp

$480

10

40

&nbsp

$400

12

20

&nbsp

$240

14

1

&nbsp

$14

Question8

&nbsp

Quantity Demanded

&nbsp

Total Revenue

Elasticity Coefficient

Elastic or Inelastic

Price

$4

100

&nbsp

$400

6

80

&nbsp

$480

-0.4

Inelastic

8

60

&nbsp

$480

-0.75

Inelastic

10

40

&nbsp

$400

-1.333333333

Inelastic

12

20

&nbsp

$240

-2.5

Inelastic

14

1

&nbsp

$14

-5.7

Inelastic

Question9

IncomeElasticity of Demand

Question10

Thegoods are termed as substitute goods.

References

Gardiner,W., &amp Dixit, P. (2009).&nbspPriceelasticity of export demand.Washington, D.C.: U.S. Dept. of Agriculture, Economic ResearchService.

MARTIN,R. (2011). PRICE ELASTICITY AND A SHIFTING DEMAND CURVE.&nbspEconomicInquiry,&nbsp17(1),153-154. doi:10.1111/j.1465-7295.2011.tb00305.x

Tellis,G. (2012).&nbspTheprice elasticity of selective demand.Cambridge, MA: Marketing Science Institute.