ECONOMIC ASSIGNMENT

Economic Assignment

Economic Assignment

Question # 1:

Own Price elasticity of demand

It is the ratio of the relative change in the number of the desired good, the relative change in the price, expressed as a ratio of the price elasticity of demand:

Where,

 - Price elasticity of demand,

 - % change in the price

 - % change in demand,

Influential Factors

The percentage of income devoted to good- if the expenditure of the good is low compared to the amount of income, the demand for the good is relatively inelastic. For example, consider two products: shoe polish and apartments. Shoe Shine costs relatively low, so if the price increases by 10%, the change in price will have a big impact on customer behavior. However, if house prices rise by 10%, the price is much higher, consumers will prefer to carry out repairs on the purchase of a new property, so generally speaking, the demand for housing falls.

The existence and availability of substitutes - if there are substitutes for the product, the price increase will compel the buyer to buy substitutes. For example, if the price of margarine rises, sales of butter will increase (Tellis, 1988, pp. 67-78).

The passage of time since the introduction of changes in the price of the good - price elasticity of demand for most products is higher in the long run than in the short. Considering the price of gasoline in the 70's, which reached the highest level in history, in the short term consumer response to price increases based on the fact that they limit the use of cars by making greater use of public transport. In the long run, consumers changed their behavior by buying smaller cars or prefer working closer to home.

Satisfactions of the needs of consumers - the demand for basic goods is less price elastic than for luxury goods, such as bread, compared to cookies.

Rigid Demand

Inelastic demand

Proportional demand

Elastic demand

Perfectly Elastic demand

Cross-price elasticity of demand

The (relative) percentage change in the quantity demanded for a given product in relation to percentage change in price of a competitive product. The cross-price elasticity is greater than 0, when substitutive goods (the amount of demand for the (own) product goes down when the price of the competitive product falls). The cross-price elasticity is less than 0, are complementary goods (the amount of demand for the (own) product increases when the price of the competitive product falls) (Brons, 2006, pp. 34-39).

Income elasticity of demand

Income elasticity of demand is a response to a change of income; this reaction is a measure of the ratio of the income elasticity of demand, which is:

where:

 - Income elasticity of demand

?d - increase in demand

d - the demand,

It tells us if the percentage change in demand, if the income of buyers will change by 1%.

Question # 2:

The cross price elasticity between Cola Magic (own product) and lemon heaven soda is +3.2. This is the indicator of the fact that if the price of lemon heaven soda increases, the customer will buy more of Cola ...