| Price Elasticity Of Demand |
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| elasticity | |
| consumer theory | |
| SHOPPER'S DELIGHT | |
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INTRODUCTION Price elasticity of demand is measured as the percentage change in quantity demanded that occurs in response to a percentage change in price. For example, if, in response to a 10% fall in the price of a good, the quantity demanded increases by 20%, the price elasticity of demand would be 20%/(− 10%) = −2. (Case & Fair, 1999: 109). In general, a fall in the price of a good is expected to increase the quantity demanded, so the price elasticity of demand is negative as above. Note that in economics literature the minus sign is often omitted and the elasticity is given as an s and can be compared even if the original calculations were performed using different Currencies or goods. An example of a good with a highly inelastic demand curve is salt: people need salt, so for even relatively large changes in the price of salt, the amount demanded will not be significantly altered. Similarly, a product with a highly elastic demand curve is red cars: if the price of red cars went up even a small amount, demand is likely to go down since substitutes are readily available for purchase (cars of other colors). It may be possible that quantity demanded for a good rises as its price rises, even under conventional economic assumptions of Consumer Rationality . Two such classes of goods are known as Giffen Goods or Veblen Good s. The unicist approach to price elasticity solved the problem integrating the demanded quantity, its subjective value and the price. Various research methods are used to calculate price elasticity:
MATHEMATICAL DEFINITION The formula used to calculate the coefficient of price elasticity of demand is |