Elasticity of demand

Solo disponible en BuenasTareas
  • Páginas : 2 (375 palabras )
  • Descarga(s) : 0
  • Publicado : 17 de mayo de 2011
Leer documento completo
Vista previa del texto
A- Elasticity of demand is measure of how much the demand for a certain product alters or modifies when there is a change in one of the factors determining demand. There are three main elasticitiesof demand. The are:

PED- Price elasticity of demand
XED- Cross elasticity of demand
YED- Income elasticity of demand

Price elasticity of demand is a measure of how much quantity demanded of aproduct changes when there is a change in the price of the product. This therefore establishes an inverse relationship between the two concepts.

A product can be elastic or inelastic; terms whichshow the size of its demand responsiveness deriving from a change in price. If a product is inelastic a change in price will lead to a smaller proportional change in its quantity demanded. If it iselastic, in contrast, a change in price will lead to a greater than proportional change in its quantity demanded. These two concepts affect the total revenue gained by the firm.

Cross elasticity ofdemand is a measure of how much the demand for a product changes when there is a change in the price of another product. This type of demand elasticity therefore involves the relanshionship betweenproducts, including substitutes and complements.

Income elasticity of demand is a measure of how much the demand for a product changes when there is a change in the consumer’s income. This lawestablishes a direct relanshionship between normal goods and income, as when income increases demand for this goods also. However, there is an inverse relanshionship between income an inferior goods, aswhen people receive more income they will start purchasing higher priced products and so inferior goods demand will decrease.

In this type of elasticity of demand the concepts of inelastic andelastic can also be applied. If the percentage increase in quantity demanded for a product is less than the percentage increase in income, the product is said to be income-inelastic. If instead, the...
tracking img