Price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price (Sloman, Hinde, Garratt, 2013, p. 64). The elasticity or the responsiveness of demand to a change in price is measured using the formula:
E= Percentage change in quantity demanded Percentage change in price (Begg, Ward, 2007, p.34)
With the numerical data provided from this formula a description can be formed:
Percentage change in price. Percentage change in demand. Numerical calculations Elasticity Value Description
10 0 0=0 10
E = 0 Perfectly inelastic
10 5 ½ = 5 10
E < 1 Inelastic demand 10 10 1= 10 10 E …show more content…
When it comes to a product that has many close substitutes goods, it makes the product elastic. This is due to the consumers having the ability to change the brand or type of product they buy in order for them to avoid the increase in price. This can also work the other way if a business lowers the price of their substitute it will lead to an increase in demand, as more consumers will be more inclined to buy the product. In addition, the amount of income that a consumer has to spend on a product affects the price elasticity of demand. For example, some products the consumer can go without if the price increases such as foreign holidays. The consumer will keep their income back in order to purchase necessities they require which makes these products inelastic as they will be sold no matter the price as people need them for example bread and …show more content…
The demand, meets the amount of the product being supplied as well when the price is at the equilibrium. Therefore, this leads to a shortage of goods, which in the graph is shown, between ‘Qs’ and ‘Qd’. This occurs when the price a business has to sell at due to government restrictions means that they have to sell their product at a loss. Therefore they are losing money so cannot afford to produce the goods required by the market. A shortage of products will persist within a country as long as the government has the maximum price controls in place. This means that consumers cannot purchase the products they need as there simple is not enough to go around. In order to combat shortage these governments will have to change the price controls so that businesses can start working at a
E= Percentage change in quantity demanded Percentage change in price (Begg, Ward, 2007, p.34)
With the numerical data provided from this formula a description can be formed:
Percentage change in price. Percentage change in demand. Numerical calculations Elasticity Value Description
10 0 0=0 10
E = 0 Perfectly inelastic
10 5 ½ = 5 10
E < 1 Inelastic demand 10 10 1= 10 10 E …show more content…
When it comes to a product that has many close substitutes goods, it makes the product elastic. This is due to the consumers having the ability to change the brand or type of product they buy in order for them to avoid the increase in price. This can also work the other way if a business lowers the price of their substitute it will lead to an increase in demand, as more consumers will be more inclined to buy the product. In addition, the amount of income that a consumer has to spend on a product affects the price elasticity of demand. For example, some products the consumer can go without if the price increases such as foreign holidays. The consumer will keep their income back in order to purchase necessities they require which makes these products inelastic as they will be sold no matter the price as people need them for example bread and …show more content…
The demand, meets the amount of the product being supplied as well when the price is at the equilibrium. Therefore, this leads to a shortage of goods, which in the graph is shown, between ‘Qs’ and ‘Qd’. This occurs when the price a business has to sell at due to government restrictions means that they have to sell their product at a loss. Therefore they are losing money so cannot afford to produce the goods required by the market. A shortage of products will persist within a country as long as the government has the maximum price controls in place. This means that consumers cannot purchase the products they need as there simple is not enough to go around. In order to combat shortage these governments will have to change the price controls so that businesses can start working at a