Egt 1 Task 2 Essay Example
EGT 1: Task 2-309.1.2-08 & 09
Elasticity of demand is the relationship between the demands for a product with respect to its price. Generally, when the demand for a product is high, the price of the product decreases. When demand decreases, prices tend to climb. Products that exhibit the characteristics of elasticity of demand are usually cars, appliances and other luxury items. Items such as clothing, medicine and food are considered to be necessities. Essential items usually possess inelasticity of demand. When this occurs prices do not change significantly.
“The Cross-price elasticity of demand measures the rate of response of quantity demanded of one good, due to a price change of another good” (Economics.about.com, 2013). When two similar products are present they are considered to be substitutes for each other. For example, say you have Coke and Pepsi. When the price of Coke rises so will the increased demand for Pepsi and other like products. This is considered to be a positive relationship. The relationship is negative when you have two products that complement each other. For example, say the price of a car increases. When price escalates the demand for tires, its complementary product, will decrease.
Income elasticity is a way that economists measure the level that people act in response to changes in their income that may effect the consumer purchasing more or less of a product. This form of measurement helps to classify products as inferior or normal. A normal good can be described as a product that increases in demand at the same time people purchasing their product have an increase in their income. Even though both are increasing, income will not increase as fast as demand. Income elasticity of demand is positive at that point. Income elasticity of demand is measured less than one. An inferior good is a good that is consumed less due to an increase in the buyer’s income. For example, if the price of ramen noodles
Elasticity of demand is the relationship between the demands for a product with respect to its price. Generally, when the demand for a product is high, the price of the product decreases. When demand decreases, prices tend to climb. Products that exhibit the characteristics of elasticity of demand are usually cars, appliances and other luxury items. Items such as clothing, medicine and food are considered to be necessities. Essential items usually possess inelasticity of demand. When this occurs prices do not change significantly.
“The Cross-price elasticity of demand measures the rate of response of quantity demanded of one good, due to a price change of another good” (Economics.about.com, 2013). When two similar products are present they are considered to be substitutes for each other. For example, say you have Coke and Pepsi. When the price of Coke rises so will the increased demand for Pepsi and other like products. This is considered to be a positive relationship. The relationship is negative when you have two products that complement each other. For example, say the price of a car increases. When price escalates the demand for tires, its complementary product, will decrease.
Income elasticity is a way that economists measure the level that people act in response to changes in their income that may effect the consumer purchasing more or less of a product. This form of measurement helps to classify products as inferior or normal. A normal good can be described as a product that increases in demand at the same time people purchasing their product have an increase in their income. Even though both are increasing, income will not increase as fast as demand. Income elasticity of demand is positive at that point. Income elasticity of demand is measured less than one. An inferior good is a good that is consumed less due to an increase in the buyer’s income. For example, if the price of ramen noodles