Price Elasticity Of Demand Case Study

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Introduction:
Business is a legally recognized organization designed to provide goods and services to customers with the motive of earning profits. Business today is an essential part of the modern economy due to the changes that have occurred in time, place and the human needs and desires. It leads to the growth of economy. It creates jobs and provides goods and services for consumers. Therefore; it has occupied a higher statues in different societies.
Business is divided into three types according to what they provide us with. Primary businesses extract naturally-provided materials such as coal, oil, metals, food or fish. These raw materials needed for producing other goods. Secondary businesses change raw materials into commodities. For
How the consumers respond to this change can be measured by the price elasticity of demand.
It represents a proportional change in quantity demanded of a product according to a proportional change in price. It measures the response degree of the demand of a product or service to the change in their prices.
The price elasticity of demand is calculated as the percentage of change in the quantity demanded divided by the percentage of change in price. For example, if the price of a TV increases from RO. 100 to RO. 110 and the amount sold decreases from 20 to 16 TVs the elasticity of demand would be:
(((20-16))/20 ×100)/(((110-100))/100 ×100) =(20 %)/(10% ) =2
Types of Elasticity of demand:
The types of elasticity of demand is determined by the degree of the change in the quantity demanded as a reaction to the change in price. There are five types. Perfectly Inelastic Demand:
When the change in price does not make any kind change in the quantity bought. Price elasticity of demand equals
Unitary Elastic The demand is unit when the change in price and the quantity demanded have the same percentage i.e., price elasticity of demand equals one.

Factors Affecting Elasticity: Available close substitutes:
The more close substitutes for a product, the more elastic demand is. If there are many electronic stores and one of them increases prices, the quantity demanded decreases.

Percent of income:
The lower the level of income, the higher the elasticity of demand will be and vice versa. Unlike rich countries, poor countries enjoys a greater elasticity of demand.

The total expenditure spent on a product:
The more we spend on a product, the more elastic the demand is and vice versa. The proportion of what we spend determines the type of demand elasticity.

Nature of commodity or service"
Necessities are inelastic, but luxuries are more elastic. Clothes and food have lower price elasticity than jewelry and holidays. Time period
The longer the time period, the more elastic a commodity becomes because more substitutes become available. If the price of petrol rose, car owners could not stop buying it. They may change cars or use public

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