# Elasticity Essay

3183 words - 13 pages

1
In this chapter, look for the answers to these questions: • What is elasticity? What kinds of issues can
elasticity help us understand? • What is the price elasticity of demand?
How is it related to the demand curve? How is it related to revenue & expenditure?
• What is the price elasticity of supply? How is it related to the supply curve?
• What are the income and cross-price elasticities of demand?
You design websites for local businesses. You charge \$200 per website, and currently sell 12 websites per month. Your costs are rising (including the opp. cost of your time), so you're thinking of raising the price to \$250. The law of demand says that you won't sell as many websites if you raise your price. How many fewer websites? How much will your revenue fall, or might it increase?
A scenario…
Elasticity . . .
• … allows us to analyze supply and demand with greater precision.
• … is a measure of how much buyers and sellers respond to changes in market conditions
• Elasticity is a numerical measure of the responsiveness of Qd or Qs to one of its determinants.
THE ELASTICITY OF DEMAND • The price elasticity of demand is a measure of
how much the quantity demanded of a good responds to a change in the price of that good.
• When we talk about elasticity, that responsiveness is always measured in percentage terms.
• Specifically, the price elasticity of demand is the percentage change in quantity demanded due to a percentage change in the price.
The Price Elasticity of Demand and Its Determinants • Availability of Close Substitutes • Necessities versus Luxuries • Definition of the Market • Time Horizon • Demand tends to be more elastic:
• the larger the number of close substitutes. • if the good is a luxury. • the more narrowly defined the market. • the longer the time period.

2
What determines price elasticity? To learn the determinants of price elasticity, we look at a series of examples. Each compares two common goods. In each example:
• Suppose the prices of both goods rise by 20%. • The good for which Qd falls the most (in percent) has
the highest price elasticity of demand. Which good is it? Why?
• What lesson does the example teach us about the determinants of the price elasticity of demand?
EXAMPLE 1: Rice Krispies vs. Sunscreen • The prices of both of these goods rise by 20%.
For which good does Qd drop the most? Why? • Rice Krispies has lots of close substitutes
(e.g., Cap'n Crunch, Count Chocula), so buyers can easily switch if the price rises.
• Sunscreen has no close substitutes, so consumers would probably not buy much...

## Find Another Essay On Elasticity

### Economics Elasticity And Inelasticity Essay

1340 words - 6 pages Explain how elasticity and inelasticity work. How does this help make sense of basic supply and demand? When we see economic terms and theories they can seem a bit overwhelming or complicated, but often they are just a scientific or mathmetical way to explain things in the world around us that most of us take for granted or chalk up to common sense. As an example elasticity or inelasticity are the economic terms used to describe how supply

### Elasticity of Demand Essay

703 words - 3 pages quantity can be more or less than the change in its price. Relative elasticity/inelasticity of demand indicates whether the percent change in demand quantity is less than percent change in price. In the long-term, demand for any product tends to be more "price elastic" due to the availability of substitutes. Elasticity of Demand also indicates whether revenue will increase or decrease.SubstituteCross-price elasticity of demand is calculated as the

### Will Bury Elasticity Scenario

716 words - 3 pages hour. If he decides to go with labor from overseas, he will incur a cost of approximately \$2 an hour. Readings from Week One of this course provided information regarding price changes due to substitute products, price elasticity of demand and price changes due to fees.Price Changes Due to Substitute ProductsA substitute product is something that may have the same qualities, but may have a lower cost. It is necessary that Will Bury research his

### Economics - Price Elasticity of Demand

540 words - 2 pages The four key concepts in this simulation focused on the following:Price ElasticityThe percent change in demand quantity can be more or less than the change in its price. Relative elasticity/inelasticity of demand indicates whether the percent change in demand quantity is less than percent change in price. In the long-term, demand for any product tends to be more "price elastic" due to the availability of substitutes. Elasticity of Demand also

### Price, Income and Cross Elasticity of Demand

1482 words - 6 pages Explain what is meant by the terms price elasticity, income elasticity and cross elasticity of demand and discuss the main determinants of each of these. Discuss the importance of each of these to the decision making process within a typical business.Elasticity is the responsiveness to which one variable responds to a change in another variable Price elasticity of demand (PED) measures the responsiveness of quantity demanded of a product to a

### Define And Explain Price Elasticity of Demand

1316 words - 5 pages Price elasticity of demand is defined as how demand changes as a result of a change in price. It can be said that if a reduction in price leads to an increase in demand then demand is relatively elastic. Elasticity is usually negative. There is an alternative scenario where demand will increase as price does so too. This happens only in the case of Giffen goods, where elasticity is positive. The formula for price elasticity of demand is

### Supply and Demand and Price Elasticity Paper

1041 words - 4 pages Supply and Demand and Price Elasticity PaperPricing, supply, and demand are the foundation of the economic structure. This paper is intended to highlight the affects of each. The changes in supply and demand will be looked at along with how changes in price and quantity influence market equilibrium. It will also look at how the necessity of a good and the availability of substitutions affect price elasticity. Finally, it will compare and

### Buoyancy and Elasticity: Determinants of Local Tax System's Performance

2083 words - 8 pages BUOYANCY AND ELASTICITY: DETERMINANTS OF LOCAL TAX SYSTEM’S PERFORMANCE Civil servants and priests, soldiers and ballet-dancers, schoolmasters and police constables, Greek museums and Gothic steeples, civil list and services list—the common seed within which all these fabulous beings slumber in embryo is taxation. Karl Marx Every citizen, whether young or old, wealthy or poor, property owners or property-less, pays taxes to help

### What do you understand by the own-price elasticity of demand for a good?

922 words - 4 pages What do you understand by the own-price elasticity of demand for a good? 1. (a) What do you understand by the own-price elasticity of demand for a good? (b) Will a linear (straight line) demand curve have a constant own-price elasticity of demand? Explain your answer. (c) Following the terrorists attacks in the USA on 11 September, there was a marked fall in business travel. In respomse, many hotels cut

### Price Theory and Price Elasticity: Using the article: "China sees shortfall in grain output".

884 words - 4 pages has now caused the price of grains to dramatically rise. The demand of rice is elastic. But how do you figure out all of this? It's all part of elasticity and price theory.The elasticity of both demand and supply are important factors of a countries economy. Elasticity refers to the amount of responsiveness in supply or demand related to the changes of price in a certain good. The most simplistic way to see if something is elastic or inelastic is

### Discuss the factors, which affect demand: Explain the concept of price elasticity of demand and its significance to governments and producers.

699 words - 3 pages price. A shift in the demand curve could be resulting from changes in tastes, real income, population size and composition, consumer expectations or technological progress. These factors often work simultaneously to increase or decrease demand. However these factors do not apply similarly to all goods. The demand for generic brand products decreases as income rises.The price elasticity of demand refers to the responsiveness of quantity demanded

## Similar Essays

### Elasticity Essay

1035 words - 4 pages This paper will prove that some products or services sell differently than others depending on their substitutions. Often times these differences depends heavily on the price, numbers, availabilities, etc. with in category. This paper will also discuss and cover the following questions that will be broken into the following parts:ØPart One: Is the price elasticity of demand for said product price elastic or price inelastic? Based on this

### Price Elasticity Essay

617 words - 2 pages Price elasticity of demand is a consumer's receptiveness to the change of a price in a good or service. In essence what this means is that a consumer has certain expectations in regards to goods or services he or she wishes to purchase. There are certain goods or services that a consumer will purchase regardless how much they are. This usually occurs when the item is a necessity and an alternative is not available. This is price elasticity. The

### Elasticity Of Demand Essay

2520 words - 10 pages 1. (a) Using examples and diagrams, explain the various concepts of elasticity of demand.The law of demand states that if the price of a commodity increases, quantity demanded falls and if the price of the commodity falls, quantity demanded increases. Quantity demanded is the amount that a consumer is willing and able to buy at a given price over a given period of time.Price is not the only factor that determines how much a good, people will buy

### Elasticity Of Demand Essay

660 words - 3 pages Analyzing Elasticity of DemandThe four concepts in this week's simulation focused on the following: price elasticity, substitute, complement, and income. First, price elasticity, the percent change in demand quantity can be more or less than the change in its price. Relative elasticity/inelasticity of demand indicates whether the percent change in demand quantity is less than percent change in price. In the long-term, demand for any product