Suppose in the previous year the equilibrium price of wheat was OP at which OQ quantity was bought and sold. Such a commodity is called inferior good because less of it is purchased as income increases.
The conclusion is that price elasticity of demand refers to a movement along a specific demand curve.
The demand curve for good B jam will coincide with the X-axis. The formula for price elasticity of demand at the mid-point C in the arc PM on the demand curve is: Devaluation makes exports cheaper and imports dearer of the country adopting it.
This is the case with durable consumer goods, like cloth, bicycle, fan, etc. Ipso facto, any point below the mid-point towards the X-axis will show inelastic demand. The basis of Promotional Elasticity: Importance of the Concept of Price Elasticity: This is illustrated in Figure The elasticity of demand for any commodity depends upon the category to which it belongs, i.
Concept of Income Elasticity of Demand: The original demand curve is D and the supply curve is S. Panel B shows a positive but inelastic income demand curve Dy because the increase in demand Q1 Q2 is less than proportionate to the rise in income Y1 Y2.
Such a curve is known as an Engel curve which shows the quantities of a commodity which a consumer would buy at various levels of income. The government considers the elasticity of demand of the products of those industries which apply for the grant of a subsidy or protection.
The concept of elasticity of demand is of paramount importance to the finance minister. Panel D shows the D curve for an inferior good which bends upwards from A to B when the quantity demanded decreases by Q2Q1 with the rise in income by Y1Y2. Such commodities are coal, milk, steel, electricity, etc.
Persons who belong to the higher income group, their demand for commodities is less elastic. If some goods have high cross elasticity, it means that they are close substitutes. The terms of trade refer to the rate at which a country exchanges her exports for her imports from the other country.
Such goods are close substitutes. Similar is the case with commodities which are required at the time of marriage, death ceremonies, etc. The curve Dy in Panel C shows unity income elasticity of demand. Moving up the demand curve from the mid-point, elasticity becomes greater. It is in public interest that only those industries should be taken over and run as public utilities by the state, the demand for whose products is inelastic.
If the two points which form the arc on the demand curve are so close that they almost merge into each other, the numerical value of arc elasticity equals the numerical value of point elasticity. The slope of the DD curve shows negative cross elasticity. Panel E shows a vertical income demand curve Dy with zero elasticity.
The obvious conclusion is that the government would get larger revenue by levying indirect taxes on goods with less elastic demand than from the goods with elastic demand. In the first case, we will be in a position to charge a high price for our products and in the latter case we will be paying less for the goods obtained from the other country.
Elasticity of demand further helps in fixing prices for the services rendered by public utilities. Commodities having substitutes have more elastic demand because with the change in the price of one commodity, the demand for its substitute is immediately affected.
In the words of J. Therefore, the price of each is fixed on the basis of its elasticity of demand. The coefficient E may be positive, negative or zero depending upon the nature of a commodity.
One of the great contradictions in private enterprise economies is the paradox of poverty in the midst of potential plenty. Where the demand for services is inelastic, a high price is charged, while in the case of elastic demand a low price is charged.
In Table 3 when the price falls from Rs. We have studied the measurement of elasticity at a point on a demand curve. If the frequency is greater, income elasticity will be high because there will be a general tendency to buy comforts and luxuries.
When with the fall or rise in price, the total expenditure remains unchanged; the elasticity of demand is unity. Normal goods are of three types:Price elasticity of demand is a measure of the responsiveness of change in quantity demanded of a good/service to a change in price, ceteris paribus.
As the law of demand indicates, when the price of a good/service increases, the demand of it will decrease. Factors affecting price elasticity of demand essay. Can't sleep. my body thinks it's still school and that i need to turn in an essay or submit a quiz.
cpt code descriptive essay. writing an essay about a poem. sociology terms gender roles essay. When there are changes in the total revenue which is opposite to the price, the demand is deemed elastic.
If the total changes in the total revenue are the same directing of price, the demand is inelastic. While the total revenue is unchanged when price changes, this demand is unit-elastic (McConnell et al., ).
Assignment 2 Price Elasticity Of Demand Price Elasticity of Demand is the quantitative measure of consumer behavior whereby there is indication of response of quantity demanded for a product or service to change in price of the good or service.
Price elasticity of demand is unity when the change in demand is exactly proportionate to the change in price. For example, a 20% change in price causes 20% change in demand, E = 20%/20% = 1. Price elasticity on the first demand curve in.
Aug 29, · Factors affecting price elasticity of demand essay. Found 4 single spaced pages of an essay i'd been meaning to drafty draft, which i apparently started to do last year. thanks past me!Download