Elasticity : Elasticity of Demand | Definition | Economics | Formula - Project Management

The Elasticity of Demand is a measure of change in the quantity demanded in response to the change in the price of the commodity. It is when consumers really respond to price changes for a good or service. It is one of the three types of demand. Usually, Demand extends or contracts respectively with a fall or rise in price. Even, Both the demand and supply curve show the relationship between price and the number of units demanded or supplied. Hence, Price elasticity is the ratio between the percentage change in the quantity demanded or supplied and the corresponding percent change in price.

Consumers usually buy more than one item when the goods down, revenues increase, the price of goods is rising, substitution or complement goods when prices go down. That is, the direction of change in which the number of items requested moves, and not the extent of the changes. To measure how big its consumers respond to changes in variable-variables, economists use the concept of elasticity (elasticity).

Demand

The number of an item demanded by the consumer is influenced by several things including:

The price of the goods themselves
The price of other goods
Income and Consumer Tastes

So the number of items X requested goods are affected by X itself, the price of other goods (both nature and the complementary nature of substitution) or income and consumer tastes.

Law of demand:

has a negative slope (-): "the higher the price the goods then the number of requested items is getting a little bit and vice versa". If the price of X has decreased, while prices of other goods, keep, then goods X is relatively inexpensive so that the quantities X asked. If the price of items X has decreased while fixed income means income relatively increased so that the amount of goods purchased X increase.

Elasticity

is a measure of the magnitude of the response or the number of requests the number of supply to changes in one of the determination.

The elasticity of demand is a measure of the magnitude of the number of requests an item response to changes affecting variables, calculated as the percentage change in the number of requests divided by the change in the percentage of variable that affects or in other words a comparison (ratio) between the percentage change in the number of items that are requested by the percentage change in price.
Thus the elasticity of demand measures the degree of sensitivity of the requested amount of changes to changes in price.

Associated with the request we encounter several types of elasticity, among others:

Price elasticity of demand (price elasticity)
Cross elasticity of demand (the cross-elasticity)
Income elasticity of demand (elasticity of income)

Determinant-determining elasticity of Demand

Availability of Substitutes the closest

stuff with the closest substitutes tend to have a more elastic demand because consumers make it easier to replace the item with another. For example, butter and margarine is the stuff that is easily replaced by another. Rising prices of butter just a little, if the price of margarine, will result in the amount of butter sold down free. Instead, because the egg is the food without substitution, then the demand for eggs is not elastic the demand for butter.

Needs versus Luxury

Needs tend to have an inelastic demand, instead of luxury has an elastic demand. When the cost of treatment to the doctor increased, will not dramatically change their frequency to the doctor, although perhaps not as often as before. Otherwise when a cruise ship is increased, then the number of cruise ship demand will go down a lot. The reason is because most people look for the medication to the doctor as a need, while a cruise ship as a luxury. An item is a necessity or a luxury not depending on the nature of the goods was essential, but at the buyer's option. For a seafarer who does not pay attention to his health too, cruise ships may be a necessity with inelastic demand, while the medical treatment to the doctor was luxury with an elastic demand.

Definition of Market

elasticity of demand in any market depends on how we describe the boundaries of the market. A narrow well-defined markets tend to have a more elastic demand than defined broadly, because it's easier to find substitutes for the goods that are narrowly defined. For example, food, a broad category that has inelastic demand, because there are no substitutes for food. Ice cream, a narrower category, have a more elastic demand because it is easy to replace it with another dessert. Vanilla ice cream, a category that is very narrow, have a very elastic demand because other flavors of ice cream is an almost perfect substitutes for vanilla.

Span of

goods tend to have a more elastic demand over a longer period of time. When gasoline prices rise, gasoline demand number only a few experienced downturns in the first few months. But after that, however, people will buy cars that are more fuel efficient, using public transportation, and moved to work closer to their residence. In recent years, the amount of the gasoline demand will decrease free.

Calculate the price elasticity of demand for

economists calculate the price elasticity of demand is the percentage change in the number of requests as divided a variable percentage changes influence, which can be is assumed with variable price

Elasticity of demand price = percentage of change request/change percentage price

As an example suppose that the increase in ice cream prices 10 percent result in the amount of ice cream that you buy comes down to 20 percent. We calculate the elasticity of your request as follows:

Demand price elasticity = 20%/10% = 2

in this example, its elasticity is 2, reflects that change in the number of requests proportional to twice the magnitude of the price change.

Because the amount of stuff that is in touch with negative price is requested, then the change percentage amount will always have the opposite sign to the changing percentage of the price. In this example, the percentage of the price change is positive 10 percent (reflecting an improvement), and changes in the amounts requested percentage is negative 20 percent (reflecting a flower). For this reason, the price elasticity is sometimes on request stated as negative numbers. In this book we follow common practice by eliminating the minus sign and write down all the positive numbers as price elasticity (mathematicians call this as absolute value). With this deal, this elasticity to greater price elasticity stating responsiveness is greater than the amount of the price request.

Price Elasticity (Exx)

Price elasticity is utilized to determine the nature of the demand for an item. Price elasticity can be distinguished into:
The elastic nature of the goods, a Request that is elastic when elasticity make is greater than 1.
In the elastic (not Elastic) that Requests a goods are inelastic if the price elasticity smaller than 1.
A single elasticity (Uniter) that Requests an item are single elasticity in price elasticity is equal to 1.

Formula:

Exx =% ∆ Q/% ∆ P = Qx/∆ ∆ Px x Px/Qx

Cross-Elasticity (Exy)

cross-Elasticity is utilized to determine the nature of the relationships between items. The nature of the relationships between items can be differentiated into:

Substitutes (interchangeably) is the nature of the relationship between the goods substitution when cross-elasticity is said to be greater than zero (positive).
Complementary goods (complementary) is the nature of the relationship between the goods are said to be complementary when cross-elasticity is smaller than zero (negative).
Neutral relationship is the nature of the relationships between items is said to be neutral in the cross-elasticity is equal to zero.

Formula:

Exy = Qx/∆ ∆ x Py Py/Qx

(Exi) Income Elasticity

elasticity of income used to determine a good fit into groups or types of goods. Type of goods can be distinguished into:

Superior Goods (luxury goods) is the stuff that changes the number of items requested are greater than the changes in consumer income. An item is said to be luxury items when the elasticity of revenues is greater than 1.
Inferior Goods are goods that when consumer income increases then the number of the requested goods are thus increasingly reduced. An item is said to be inferior goods in the elasticity of its revenue is less than zero (negative).
Normal Items (daily needs) is the stuff that changes the number of items requested less than the change in the income of the consumer. An item is said to be normal if the items of income elasticity is positive but less than 1 (0<1)>

Formula:

Exi = Qx/∆ ∆ I x I/Qx
Description: I = Income (revenues)

Total Revenue (Receipts Total)

is the amount of money received by the manufacturer of the proceeds output, the magnitude of the money received depends on the amount of output that is sold.

Formula: TR = P x Q
TR = Total Revenue
P = Price (the price of)
Q = Quantity (amount)