If you are struggling with elasticity of demand homework answers, you might as well give this a read. When it comes to the pricing of a specific good, several factors contribute equally to an effective range of price. Most such factors are concerned with elasticity, i.e., a variableâ€™s response with change in price.
Generally, demand is affected directly with changing of price. The demand is affected according to the goodâ€™s necessity. If you determine elasticity of a certain good, you may also determine its direct necessity along with its margin of growth in production and price.
As far as a goodâ€™s demand is concerned, there are some different forms of elasticity. Price elasticity of a particular object is one of the primary calculations. Normally, when any property of a certain good is modified, a change in price is the change that most commonly found. With the inflation of modern economy, price is generally going upwards, which affects an objectâ€™s demand. The amount of room that price needs to travel, or its lack of room, is elasticity.
Calculation of elasticity
The most critical aspect of bringing success to any object is finding key price. The calculation involved with determining of elasticity is relatively simple. You need to simply divide the quantity change in percentage by the price change in percentage.
These values are generally found with differential calculus and demand curves, but you can also use differentiating curves for calculating it graphically. The calculation might be a part of your elasticity of demand homework answers, so you better know about it.
What do elasticity values mean?
There is a deep meaning with the values of elasticity, even though they a simply integral in nature. From the elasticity formula, the value 1 is the most valuable answer you can derive. If the elasticity is 1, it means that the concerned good is at its key pricing. This means that a small increase in price wonâ€™t drastically affect the itemâ€™s demand.
Price may go both ways, it may go up, or it may go down. It will continue to be in a good range till the price has an elasticity of 1. If the value of elasticity is not 1, it ranges closely in proximity. However, different values have different meanings. Commonly, when you look at elasticity, you would come across absolute value, thus sign changes are negated.
An elasticity of more than 1 would affect the demand in a proportionate manner. The higher elasticity makes it more vulnerable to loss of customers because of the change in price. To put it in simple terms, it means that there is a high chance that the concerned good would be substituted by another because of the change in price.
Elasticity value going below 1 means the good is inelastic. This means that the change in price of the item would not have much effect on the demand for the item. Thus, the chance of price change affecting the demand is less if the elasticity vale is lower. This might be beneficial, but it may also indicate that the price is excessively low, thus the seller isnâ€™t getting adequate revenue from it.
If you know how to find out the value of elasticity and its significance, the chances are that you will not have much trouble with your elasticity of demand homework answers. However, if you still face problems with your homework or assignment, you can always seek online help from expert tutors. Online homework help service might be the only way out in such a situation.
Elasticity and customer expenditure
Customer expenditure also plays a role in elasticity in price. Such expenditure determines the prices for a certain usage amount or time span, just as is the case with cell phone companies. Elasticity of price being more than 1, means that an increase in price would decrease a customerâ€™s expenditure.
For instance, if a phone company increased the rates for afternoon call, the consumers would likely avoid calling at that time of the day. For encouraging expenditure, the company would have to lower the rates. An elasticity of less than 1 means that an increase in price would mean expenditure is increasing as well or staying the same.
Income Elasticity of Demand and Cross-Price Elasticity of Demand
When working on your elasticity of demand homework answers, there are two other forms of measure that you should know of. Both these form deal with changes as well. First is the Income Elasticity of Demand. Determining it is a lot like Price, only the change in income replaces the change in price.
As you can guess it yourself, if the income of an individual or population increases, there are chances that their expenditure would also increase, which would further result in increase of demand. This equationâ€™s elasticity is positive almost always, since increase in income results in higher demands.
Cross Price Elasticity of Demand is the other form you should know about. This form of elasticity measures the effects that the change in demand of a certain good has because of the change in price of another good. Suppose, there are two goods x and y respectively, two results can occur.
The elasticity is positive if y is a substitute of x and it would mean that demand for x would go up. However, if y is compliment to x, there are greater chances of elasticity being negative.
Consumption Goods and Durable Goods
Now, when you are dealing with your elasticity of demand homework answers, you need to deal with goods and some properties of goods. As far as demand elasticity is concerned, the two main types of goods are durable goods and consumption goods. The durable goods generally last for a longer duration and arenâ€™t even bought on a regular basis.
Appliances or vehicles are examples of such goods. On the other hand, consumption goods are those that are regularly used by the society and such goods are generally found in the supermarket.
Elasticity of all goods differs in the shorter and longer run. In the long run, there is a more elastic demand with consumption goods. You can consider apple as an example. Even though theyâ€™re very common consumption goods, if the prices of apples were to rise suddenly, individuals are likely not to change their eating habits, meaning they would buy apples anyway. However, in longer run, the rise in price could force and individual to react to price and change habits or maybe even find a new source.
Coming to the durable goods, they are the exact opposite in these terms. Their long and short run elasticity is reversed. In the short run, durable goods are extremely elastic. A very good example, in this case, would be cars. For instance, if a person buys a car and then the price of the car rises quickly, he/she is likely to hold onto the vehicle for a longer duration rather than buying a new one sooner.
However, in the long run, the car will have to be replaced. This is because the rise in price would not be that noticeable quite simply because people donâ€™t go to car dealers as often as they go to supermarkets. With long run being less elastic, the fiscal responsibility would be overtaken by necessity.