Thursday, August 29, 2019
The Concept of Price Elasticity of Demand Essay - 1
The Concept of Price Elasticity of Demand - Essay Example The sign of price elasticity is more frequently than not ââ¬Å"negative although analysts tend to ignore the sign as it can lead to ambiguityâ⬠. However, the positive price elasticity of demand can be achieved for Giffen goods or goods that ââ¬Å"do not conform to the Law of Demandâ⬠. A less than one value of price elasticity of demand value implies inelasticity of a good i.e. change in the price conditions seems to have a small effect on the quantity demanded of that good (Marquez, 2002, p. 22). The demand for a good is said to be elastic when the value of price elasticity is greater than one which small changes in the price level will have significant effects on the quantity demanded of that good. Revenue can be ââ¬Å"maximized when the value of price elasticity of demand is equal to oneâ⬠. The formula for the price elasticity of demand is provided below: à The term income elasticity of demand is used to define the change in demand conditions due to change in income of the consumers in an economy keeping other conditions as constant. A negative value of the income elasticity can be achieved in case of inferior goods where a rise in income of the consumers will lead to falling in demand for that good. A positive value of price elasticity of demand can be achieved in case of ââ¬Å"normal goods where an increase in income will lead to rising in demandâ⬠conditions for that good whereas if the value of income elasticity of a good is less than one implies the good is a necessity good (Flynn and Antonioni, 2011, p. 124). Again ââ¬Å"if the elasticity is greater than one then the good can be categorized as the luxury or superior goodâ⬠.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment