Essay Title: 

Price Elasticity of Demand

April 3, 2016 | Author: | Posted in economics, mathematics and economics

Price Elasticity of Demand

PRICE ELASTICITY OF DEMAND

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Table of Contents

Introduction .P age 3

Consumer Awareness of Price Elasticity of Demand .Page 5

The Case of Telecommunications Services .Page 6

Revisiting the Market for Gasoline .Page 8

Conclusion .Pa ge 10

References .P age 12

PRICE ELASTICITY OF DEMAND

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Price Elasticity of Demand

Introduction

The price elasticity of demand is the degree to which a percentage change in price of a particular good or service would lead [banner_entry_middle]

to a corresponding percentage change in its market demand (Weingarten and Stuck , 2001 . If , for example , a 10 decrease in the price of a good is followed by an increase in the demand of that good by 20 , the price elasticity of demand would be 20 divided by negative 10 , i .e . -2 (Wikipedia , 2007

All companies producing goods or providing services should be aware of the price elasticity of demand for their particular goods or services . If a company increases the price of its product by a substantial amount , and this action on its part is followed by a substantial decrease in the demand for its product , the company may not be able to meet its revenue targets in the short run and /or the long run . This is because consumers may turn to the products of the company ‘s competitors , or give up their need for that particular product altogether

However , not all goods and services are elastic . Goods that are necessities have highly inelastic demand curves . These curves approach vertical lines given that price changes of these goods or services have a negligible , if not no affect on demand . Antibiotics , for instance may cure people who would otherwise die . Ailing folks , therefore , are likely to pay anything to purchase the necessary medication to regain health (Wikipedia

PRICE ELASTICITY OF DEMAND

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Similarly , when President Bush in the year 2005 called on Americans to drive their cars less in response to the disruption caused by hurricanes in the Gulf of Mexico , conversation advocates collected evidence that Americans began to use more of public transport than before . Even so , economics asserted that Americans would not agree to drive their cars less because gasoline is seen almost as a necessity for the expensive cars that Americans have already purchased . To see a significant decrease in the demand of gasoline , America would have to experience a significant price hike of gasoline for at least five years (Goolsbee , 2005

The high or low use of gasoline is , no doubt , related to the health of a nation and the world at large . The world is holding discussions at governmental levels to consider the introduction of electric cars to reduce carbon emissions that go with high gasoline use in cars . As we have discovered , understanding the price elasticity of demand of gasoline would help us change driving habits in the long run . Hence effective societal change is possible only after a thorough consideration of economic facts

Given that an understanding of… [banner_entry_footer]

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