BUSINESS ECONOMIC REPORT

Electron Management System Ltd - Demand Elasticity



Electron Management System Ltd - Demand Elasticity

Introduction

Knowing the linear function of demand, it is possible to estimate the elasticity price. Looking at this equation, for different values ??of the price, there will be a determined consumption, resulting in that for each value of consumption and price of a demand function, we have different values ??of the coefficient price elasticity. In other words, along the curve of demand, ceteris paribus, have different values ??of the coefficient of price elasticity. So the question is how do we know efectuarnos the elasticity if it varies for different prices?. The answer is: If it is true that theoretically a linear function of demand will have different values ??of the coefficient of price elasticity of demand, the price of good define the market, and therefore also the price elasticity. In an economy stable, prices have no abrupt changes, but if it happens that the price varies considerably, then the price elasticity will also suffer a adjustment coefficient.

This inverse relationship between price and quantity generates a negative coefficient, so it usually takes the value of the elasticity in absolute value. The elasticity of demand is expressed as E d and depending on the responsiveness to changes in prices, the elasticity of demand may be elastic (A) or inelastic (B). The more horizontal the demand curve, the greater the elasticity of demand. Similarly, if the demand curve is more vertical, the elasticity of demand is price inelastic. This is the issue we address as part of our concepts in economics.

In general, the demand for a good is inelastic (or relatively inelastic) when the elasticity coefficient is less than one in absolute value. This indicates that price changes have a relatively small effect on the quantity demanded of good. A classically inelastic product is insulin. Variations in the price of insulin has a negligible variation in the quantity demanded. That is, insensitive or inelastic to price.

Discussion

The elasticity used in economics means and measures the change of a quantity-effect caused by variation in a-cause. The elasticity of demand, also known as the price elasticity of demand is a concept in economics is used to measure the sensitivity or responsiveness of a product to a change in its price. In principle, the elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price (Ashton, 2008). The elasticity of demand can be expressed graphically by a simplification of demand curves. When the Price Elasticity of Demand is greater than one, it is said that the demand for this good is elastic (or relatively elastic). A drop down in the price of meat or ham has an impact on the quantity demanded. For example, if the price of ham decreases 5% and demand increases by 10% was obtained (10% / -5% = -2). The elasticity is equal to 2, in absolute value. Note that this is a dimensionless ...