Elasticity of Demand

Elasticity of   Demand
Stephanie M. Johnson
Microeconomics
[ April 20, 2012 ]
Professor Glenn Walters

Abstract

It is important to understand the elasticity of demand to interpret how one person's decisions can affect the supply and demand of a product.   Alfred Marshall defines elasticity of demand as "the elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price" (Marshall, A. 1920).   Business around the world use uses formulas to calculated the elasticity of demand and how certain factors can affect increase or decrease the total revenues of a product or goods.   Whether a business makes it or break it in the economy requires them to find a defining balance between supply and demand as well as other factors that triggers the effect of price elasticity. Analysis these concept will lead you to a better understanding of the economy in relations to the everyday person making an everyday decision.

Elasticity of Demand
Elasticity of demand is defined in the Business Dictionary as the degree to which a demand for a good or service varies with its price (Business Dictionary,   2011).   Depending on the products, some may find a particular product more essential in their daily lives than others.   Products that are necessities are less responsive to the price changes since the product will be purchased regardless if there is an increase in price.   Products that are less of a necessity will deter the product being purchased.   The opportunity cost of buying that product will be higher   than buying a product that is necessary.  
Computing Price of Elasticity of Demand
When computing price of elasticity of demand, we will use paint as the product.   The following information was given: original price was$3.00, price after changes was $3.50, original quality of demand   was 35 gallons, and quantity of demand after... [continues]

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