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Elasticity of Demand

In: Business and Management

Submitted By carlamcj
Words 2199
Pages 9
WGU|
Elasticity of Demand|
Discussing the Main Points|
|
Carla McJunkin|
12/20/2013|

|

Part A
Elasticity of demand is a measure of variables reaction to change given in certain other variables. It may describe the extent of which goods or services change with supply or demand as well as possible consumer income (Investopedia). There are several different categories of elasticity of demand. There are products that are defined as elastic, inelastic and unitary. In order to find the curves of supply and demand of elasticity the following equation is used: Elasticity = (% change in quantity demanded / % change in price)
There are also a few rules I should mention that are to be followed when figuring the elasticity of demand; the threshold number is always one, there are no negative numbers (absolute values only) and categories of elasticity only. An elastic product is one that has a price of elasticity demand of more than one (1+). An inelastic product is defined when the elasticity of demand is less than one (-1). An inelastic product is a product where in spite of price changes, consumers continue to purchase. A unitary product occurs when the price elasticity of demand[->0] is one (1). Let us assume a demand is unitary (elastic), and that there is a sudden decrease in price of 5% and we can assume that the percentage of change in quantity will increase by 5%., by reason of getting to the unitary number of one. .In other words, the change in quantity will be substantial. However, if the product demand is inelastic, even considerable changes in price could cause insignificant changes in the demand for quantity. The elasticity of demand is an important element of economics in that it assists corporations in simulating the possible changes in demand in view of the changes in price of their goods and services as well as, other variables.

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