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Explain the elasticity of demand concepts essay
The concept of price elasticity of demand
Explain the elasticity of demand concepts essay
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Examining the relationship between price and quantity demanded is part of the study of economics. According to the textbook demand is the amount of goods or services that consumers are both willing and able to buy at each possible price during a specified time period with other things being constant. The law of demand indicates that quantity demand varies inversely with price and the slope of demand curve is downward and negative. In other word, when the price of a certain commodity goes up, people buy less of it and vice versa (Miller, 49). For example, when the price of six-pack of Pepsi is rise from $3 to $4, people will buy (or demand) less for Pepsi and the amount of sale will want down. On the other hand, supply is the amount of goods or services that producers are both willing and able to offer for sale at each possible price during a specified time period with other things being constant. The law of supply indicates that quantity supply usually directly related to price and the slope of supply curve is upward and positive. In other word, at the higher price, a certain commodity will gradually be supplied more than at lower price (Miller, 58). For example, at the rate of $5 for six-pack of Pepsi, the manufacturers would certainly be willing to supply a larger quantity than the rate of $3 as other things being unchanged because they will be more profitable. The extent to which demand changes with price is known as "price elasticity of demand" and determined by three major conditions; existence of substitutes, share of budget and time for adjustment (Miller, 422). We can differentiate “price elasticity of demand” into three different categories. They are elastic demand, unit elasticity of demand and inelastic demand. If t... ... middle of paper ... ...imes the number of units of gasoline purchased (which goes down very few) will certainly goes up. All in all, solid understanding of the Law of Demand, the Law of Supply and the Price Elasticity of Demand is important that they will provide economic understanding of the world around oneself. If a business firm understands those theories well, they will have more information to decide on output production and pricing. Even though in real life application, people rarely use the economics terms of supply, demand and elasticity, society is making choices for their benefits everyday base on economic principles. Works Cited Chen, Katie. "Shrinking Food Packages." - KULR-8 Television, Billings, MT. WorldNow and Cowles Montana Media., 7 May 2014. Web. 9 May 2014. Miller, Roger LeRoy. Economics Today: The Micro View. 16th ed. Boston: Addison-Wesley/Pearson, 2012. Print
Let’s begin with the theory of Scarcity. The concept of demand is directly relatable to the scarcity of an item. Let’s look at Jackson Pollock’s work for example. If only 20 paintings were available created by Jackson Pollock, there would be a much greater demand than if you could purchase them easily at your local art gallery.
The Island of Mocha in the video is an example of a traditional economic system evolving into a market system. Every person plays a key role in this traditional system. They had fisherman, coconut collector, melon seller, lumberman, barber, doctor, preacher, brownies seller, and a chief. The Mochans got sick of trading goods all across the island just to get the things that they want or needed. The Chief decided that they would use clam shell for currency instead of trading.
This paper analyzes the climacteric principles and theories of microeconomics (micro) from numerous journals ensuring a proper understanding of each factor, and the vital influence they sustain in the comme il faut of independent pharmacies and their success. Unfortunately, there are supplemental constituents with the potential to hinder or eliminate the ability for an individual to successfully develop a pharmacy for profit in todays economy. Harberger (2008) suggests that in the world of micro, strength is derived from its platonic relationship with the real world combined with “the simplicity of its underlying structure” Harberger (2008). The focal point of this paper dissects Harberger (2008) to determine which micro elements are the most beneficial for independent pharmacies to take into consideration, albeit several journals with correlative research strictly from a pharmacy perspective, provide the substance needed for a concise understanding of the factors that are not covered in micro which are immensely real in todays pharmaceutical world.
According to the law of demand, as price increases, quantity demanded will decrease. This is due to the income effect. As prices of food increase, the income of these families remains constant --- resulting in fewer items bought with their respective incomes. Further, food for these families has a very inelastic demand as the percent change in quantity demanded is less than the percent change in price, meaning that regardless of the price, quantity demanded will remain constant as food is
To conclude this analysis, it can be noted that any increases in the prices of fuel will increase Australia’s economy as a whole, in other words the higher the costs of logistics will increase the price of products (Australian Competition & Consumer Commission 2014). The consumers will have to handle the burden of having higher costs of products, which would create an inflation. With the increasing price of fuel, consumers might want to alter their lifestyles, such as using public transportation or even carpooling. Vacations and travelling will also have to be cut down. Australia requires further government intervention to control the price of fuel by subsidizing so that inflation may be curbed.
The law of demand states that if everything remains constant (ceteris paribus) when the price is high the lower the quantity demanded. A demand curve displays quantity demanded as the independent variable (the x-axis) and the price as the dependent variable (the y-axis). http://www.netmba.com/econ/micro/demand/curve/
A single firm or company is a producer, all the producers in the market form and industry, and the people places and consumers that an Industry plans to sell their goods is the market. So supply is simply the amount of goods producers, or an industry is willing to sell at a specific prices in a specific time. Subsequently there is a law of supply that reflects a direct relationship between price and quantity supplied. All else being equal the quantity supplied of an item increases as the price of that item increases. Supply curve represents the relationship between the price of the item and the quantity supplied. The Quantity supplied in a market is just the amount that firms are willing to produce and sell now.
To guarantee the increased revenue for the university, I will put emphasis on proper pricing of the tuition fee since price is one of the key determinants of demand. Determining the appropriate price elasticity of demand for university education is of the essence. The elasticity of demand will determine how an increase in tuition fee would impact on the quantity of university education demanded.
With supply solely, factors involved with regulation of the supply also control some aspects of demand. Things such as production costs and desired net profit can determine whether a business succeeds or not. Having a balance between quantity and price is the greatest control any business can have. Pricing is obviously one of the most beneficial, or destructive, parts of a business. Pricing is the first and most valuable thing an individual will look at, which will overrule most other judgments based off of quality and detail. Balancing the price, however, helps to create a pristine product, with just the right amount of detail that will fuel the market, while still generating a steady net income.
Price Elasticity is the measure in responsiveness of consumers to changes in the price of a product or service. The evaluation and consideration of this measure is a useful tool in firms making decisions about pricing and production, and in governments making decisions about revenue and regulation. “Price Elasticity is impacted by measurable factors that allow managers to understand demand and pricing for their product or service; including the availability of substitutes, the consumer budgets for the product or service, and the time period for demand adjustments.” The proper consideration of Price Elasticity allows managers to set pricing such that the effect on Total Revenue is predictable and adjustments to production are timely. The concept of Price Elasticity is employed in the management of commercial firms and government.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
That is, it is sensitive to price change, and also to the quantity demanded. This means that if many people are consuming a good, the demand is greater than if less people are consuming the good. To further clarify, take the example of attending college. In an environment where most of an individual's peers are going to attend college, the individual will see college as the right thing to do, and also attend college to be like his peers. However, in an environment where most of an individual's peers are not going to attend college, the individual will have a decreased demand for college, and is unlikely to attend.
Economics is basically the understanding of how different economies function. Economics is the study of how to best allocate scarce resources among competing uses. Scarcity in the economy is the main problem. There are not enough resources to keep up with the demand for them. Within the discipline of economics, there are two areas of study: Micro and Macro Economics.
Price of the Product - This factor is so important to be considered in the projection of demand because as the law of demand states: “As the price of the product increases, the demand for the product will decrease and vice versa.” Generally, people are price-conscious; they want services with low prices but with high quality or those that will surely satisfy their needs. For instance, if the prices of services increase, there
What is Microeconomics? This question was left unanswered when I initially enrolled in this course. Microeconomics is the social science that studies the implications of individual human actions, specifically about how those decisions affect the utilization and distribution of scarce resources. Microeconomics shows how and why different goods have different values, how individuals create more efficient or more productive decisions, and how individuals best coordinate and cooperate with one another. Microeconomics does not try to explain what should happen in a market, but instead only explains what to expect if certain conditions change. For instance, If the price of the new iPhone 8 is higher than the previous model will the consumer buy it? There are several elements that will play into getting an answer for this question, but gives you a general idea of what microeconomics entails.