Price Elasticity of Demand is used to measure the responsiveness of the quantity demanded to the change in price. It is measured by the percentage of change in quantity over the percent change in price [% ∆ in quantity demanded/ % ∆ in price]. Price elasticity of demand (PED) does not have any units as all the units cancel out while calculating it. Also, │PED│ is usually negative because the value of quantity demanded will always be inverse to its price (i.e. when price gets high, quantity demanded decreases and vice versa). This is also a reason why │PED│ is written as an absolute value. When the value of PED is more than 1, it is a relatively more elastic demand, when equals to 1, it is unit elastic and when less than 1, the demand becomes inelastic.

The slope of a demand curve cannot indicate the PED because the slope and elasticity are two different concepts. Slope measures the steepness and flatness of the curve and give units of price and quantity at a point. On the other hand price elasticity of demand measures the responsiveness of quantity to the changes in price. In a demand curve, the slope decreases by a constant unit while In PED, elasticity is different at each point.

As shown in the picture above, PED changes at every point. At the change in quantity from 2.5 to 3, and change in price from 15 to 14, the PED is │2.64│ while at the change in quantity from 7 to 7.5,

and change in price from 6 to 5, the PED is │0.38│. On the other hand, while seeing the slope of the line, it is changing by 2 units throughout. This shows that while the slope remains constant, the elasticity keeps varying on the curve. This is also one of the reasons that elasticity is relatively more elastic on the upper portion of the demand curve compared to the lower portion of the curve which gradually gets perfectly inelastic when the demand curve intersects the horizontal axis. Thus, the frequent change in elasticity at every point and the slope being constant...

...Running head: PRICEELASTICITY OF DEMANDPriceElasticity of Demand
Team Paper
University of Phoenix
Priceelasticity of Demand
With the objective of increasing the company's revenue, we have been tasked by Hyundai Motors to determine if the company should increase or decrease the price of its Sport Utility Vehicle (SUV), Santa Fe. We will use the priceelasticity of demand concept to determine what actions should be taken. Additionally, we will determine the impact on demand for the Santa Fe if the incomes of Hyundai customers increase by 10 percent. We will use the income elasticity of demand concept to help us determine that impact. Our goal is to help the company determine the best unit price to maximize revenue. We will begin with some background information on the vehicle.
Here is some background information on the vehicle. The Hyundai Santa Fe's first year of production was 2001. Not only was it their first Suburban Utility Vehicle (SUV), it was also Hyundai's first vehicle designed with American consumers in mind, "We saw that this SUV market was defined by chunky, truck-platformed models such as the Cherokee, Xterra, Wrangler, Explorer, 4Runner and the Blazer," said Hyundai's U.S. president Finnbar O'Neil,...

...Priceelasticity of demand
In economics and business studies, the priceelasticity of demand (PED) is an elasticity that measures the nature and degree of the relationship between changes in quantity demanded of a good and changes in its price.
Introduction
When the price of a good falls, the quantity consumers demand of the good typically rises; if it costs less, consumers buy more. Priceelasticity of demand measures the responsiveness of a change in quantity demanded for a good or service to a change in price.
Mathematically, the PED is the ratio of the relative (or percent) change in quantity demanded to the relative change in price. For most goods this ratio is negative, but in practice the elasticity is represented as a positive number and the minus sign is understood. For example, if for some good when the price decreases by 10%, the quantity demanded increases by 20%, the PED for that good will be two.
When the PriceElasticity of Demand of a good is greater than one in absolute value, the demand is said to be elastic; it is highly responsive to changes in price. Demands with an elasticity less than one in absolute value are...

...The purpose of this essay is to define elasticity of demand, cross-priceelasticity, income elasticity, and explain the elastic coefficients for each. I will explain the contrast of and significance of difference between the three. I will also explain whether demand would tend to be more or less elastic for availability of substitutes, share of consumer income devoted to a good, and consumer’s time horizon, and give examples of each. Then, I will explain the logical impacts to business decision making that result from each. Last, I will differentiate between perfectly inelastic demand and perfectly inelastic demand, and illustrate the difference between the terms.
Elasticity of demand, also known as pricedemandelasticity, is defined as the measurement of “the responsiveness of demand for a product following a change in its own price” (tutor2u.net). Sales may increase when a price goes down. Sales may also decrease when prices go up. Examples of products with elasticity of demand are appliances and cars. When prices go down on cars, more people will buy them. The same can be said for appliances. For necessities such as food and clothes, you will see no significant change in sales with changes...

...MBA 502 – Elasticity & DemandPrice: Clearly one of the most important decisions for the firm
How will consumers react to a price change?
Buy less as price increases, but how much less?
How does a price change affect revenues?
Consumer adjustment to a change in price:
Law of demand – price and quantity are inversely related…what happens whenprice changes?
Substitution effect: Buy more (less) of a good when price falls (rises) relative to price of other good
Income effect: Can buy more (less) of all goods when price falls (rises)
Increases real income
PriceElasticity of Demand
Indicates how responsive consumers are to variation in price
When price increases, buy more…but how much more?
Percent change in quantity divided by percent change in price
Similar to miles per hour (100 mi in 2 hours…50 mph)
# is how much more (less) you buy when price falls (rises) $1
NOT slope!
Take absolute value because it is almost always negative
Examples: % ∆ Q = -40%, % ∆ P = 25%....ε = 1.6
% ∆ Q = 5%, % ∆ P = 25%....ε = 0.2
Elasticity: Comparing the % ∆ Q to the % ∆ P…for a 1% price change, how much does quantity demanded change?
Relatively elastic: ε...

...TASK 1
Consider the following equation:
MRSXY < PX/PY
where
MRS = marginal rate of substitution
x and y are two goods
P = price
< = is less than
{draw:frame}
The graph above shown us the indifference curve budget line diagram which explaining the equation MRSXY < P X / PY. There are two ways to measure the consumer preferences or what the consumer wants. The first one is by trying to put a ‘value’ on the satisfaction a consumer obtains from consuming a ‘unit’ of a good. Consumers are assumed to be able measure utility in terms of a ‘util’. However, we cannot find the total utility by using this method. So we can use another way which is by ranking the product. We can say that the consumer is preferred good Y compared to good X. the indifference curve is a curve that shows consumption bundles that give the consumer the same level of satisfaction. So this means that the consumer is satisfied at any point if the indifference curves above. The slope of the indifference curves are downward sloping. For example, the consumer will satisfy when he buys 3 good X and 4 good Y. The meaning of the term budget constraint is what the consumer can afford to buy. The income of the consumer will determine how much he can buy in the market. So, the budget line in the graph above is showing how much good X and Y that the consumer affords to buy. If the slope of the budget line is higher, this means that the consumer afford to buy...

...Priceelasticity of demand (PED) is a measure of how much the quantity demanded changes when there is a change in the price of the product.
It can be calculated using the formula:
PED= Percentage change in Qd of the product/ Percentage change in price of the product.
When determining the priceelasticity of demand, there are many possible outcomes which range from zero to infinity. If the PED value is between zero and one, then elasticity is said to be “Inelastic”, meaning there would be less response or change in quantity demanded when there is a change in the price of a product. On the other hand, if the PED value is between 1 and infinity, then elasticity is said to be “elastic”, which means that the quantity demanded will fall significantly when the price of the product is raised.
There are many different determinants of priceelasticity of demand. The first determinant is the number and closeness of substitutes. We can say that the demand of a product would be more elastic if there are more substitutes. It would also be more elastic if the substitutes are closer and more available to the consumers. Another determinant of priceelasticity of demand is the necessity of the product and how widely the...

...Technical Problem 10 Chapter 6
10. Use the figure below to answer the following questions:
a. Calculate priceelasticity at point S using the method E=ΔQ × P
ΔP Q
E=ΔQ P+ 90 100
ΔP × Q= −300× 60 =−0.5
b. Calculate priceelasticity at point S using the method E=P
P−A
E=P × 100 = 100 =−0.5
P−A 100−300 −200
c. Compare the elasticities in parts a and b. Are they equal? Should they be equal?
The values of E in parts a and b are equal, as they should be, because the two methods are mathematically equivalent formulas for computing priceelasticity.
d. Calculate priceelasticity at point R.
E= P × 400 = 400 = −1. 33
P−A 400−700 −300
e. Which method did you use to compute E in part d, E=ΔQ × P or E= P ? Why?
ΔP Q P−A
At point R, Q is not given, and ΔQ/ΔP cannot be computed. Thus E = P is the only method to use at point R. P−A
Technical Problem 2 Chapter 7
2. The estimated market demand for good X is
Qˆ = 70 – 3.5P – 0.6M + 4PZ
where Qˆ is the estimated number of units of good X demanded, P is the price of the good, M is income, and PZ is the price of related good Z. (All parameter estimates are statistically significant at the 1 percent level.)
a. Is X...

...Assignment 2
PriceElasticity Of DemandPriceElasticity of Demand is the quantitative measure of consumer behavior whereby there is indication of response of quantity demanded for a product or service to change in price of the good or service ( Mankiw,2007). The PriceElasticity of Demand is calculated using either the point method or the midpoint method.
The Point Method
PriceElasticity of Demand = Percentage change of Quantity Demanded
Percentage change of Price
The Midpoint Method
PriceElasticity of Demand = (Q2 ' Q1) \ [ (Q2 + Q1)/2]
(P2 ' P1) \ [ (P2 + P1)/2]
Were:
Q1= initial Quantity Demanded
Q2 = new Quantity Demanded
P1=Initial Price
P2= new Price
(Source : Mankiw 2007)
A good or service can either be elastic, inelastic or unit elastic. When the priceelasticity of demand of a commodity is elastic this is when the quantity demanded of a good or service responds significantly to the increase or decrease in price. Therefore after calculation the answer is greater than one making it elastic which means that increase in price decreases...

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