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Price elasticity of demand and how might it be useful to businesses
Transcript of Price elasticity of demand and how might it be useful to businesses
Price elasticity of demand
we must first apprehend the meaning
of elasticity. Elasticity measures how much the quantity demanded will be affected by a change in price or income etc. an example is apple iphone Therefore the response of demand to a price increase or decrease of a product is measured by price elasticity of demand.When demand is very responsive to a change in price it is called elastic Price elasticity of demand is calculated by comparing the percentage change in quantity demanded with the change taken place in the price percentage which changed the quantity demanded.
so the formula is:
PED= percentage change in quantity demanded
percentage change in price
an example of this is...
if it is less then 1 it is inelastic. There is another
formula to work out the percentage change in quantity demanded the formula for this is
QD x100 = percentage change in quantity demanded
the explanation of the formula is and the example of it is... There is also a way to find out the percentage change in price by dividing the change in price by the original price then multiplied by 100 the formula is
P x100 = percentage change in price
an example of this is... The determinants of the price elasticity of demand also depends on if the product has an inelastic demand or elastic demand meaning, elastic is when the change is price causes a greater percentage change in demand.
However an inelastic demand is when a change in price does not greatly change the percentage in demand and example for this is...
There is also perfectly inelastic demand which is when no matter when the price you set for a product the percentage of demand will not change because it cannot be replaced by anything or there is no alternative. Example of this is... Unit price elasticity of demand is when you change the price in a unit the quantity demanded would have the same change so when you change the price from £2 to £3 the demand of it will go from 3 to 2 but in the end revenue remains unchanged
The last elastic is perfectly elastic demand this is when the demand is infinite as long as the price does not change such as when you change a £1 product to £2 the demand is no more and there is no longer any profit in selling the product but loss instead Perfect inelastic demand vs Elastic demand Elastic Demand against inelastic demand Here now I will compare elasticity against other types of elasticity such as Elastic demand, Inelastic demand and Perfectly inelastic demand to see which is the most profitable to business. Well Elastic Demand is profitable to a business but they cannot change the price as they want but in inelastic demand you can change the price but the demand would be roughly the same.
Which one is more profitable for a business? Inelastic demand against perfectly inelastic demand Perfectly Inelastic demand is when you can change the price however you want but the demand would be the same.
Which one is more profitable for a business? Limits
Which one is more profitable for a business? Other determinants of price elasticity of demand Availability of the product
Loyalty How do elasticities profit a business Elastic demand
Perfect Inelastic demand
Perfect elastic demand
Unit elastic demand "Elasticity measures the amount of demand affected by the change in price or income etc"(SJ, 2003). An example is... Conclusion Overall what it is used for and what can be bad about it Bibliography Book
SJ, G., 2003. AS Economics. Harlow: Pearson Education Limited .
roughygee 2012, '1 pound fish man', video, YouTube, 11 March viewed 24 January 2012,http://www.youtube.com/watch?v=yl1vSXjxBmM.