The elasticity of demand
There are some goods whose demand is highly price sensitive, small variations in price cause large variations in the quantity demanded. It says that they have elastic demand. Assets, by contrast, are less price-sensitive demand are inelastic or rigid. In these there can be wide variations in prices without consumers vary the quantities they require. The intermediate case is called unit-elastic.
The elasticity of demand is measured by calculating the percentage that varies the quantity demanded of a good when its price changes by one per cent. If the result of the transaction is greater than one, the demand for that good is elastic, if the result is between zero and one, demand is inelastic.
factors that influence the demand for either more or less elastic are
1) Type of needs met good. If it is of prime necessity demand is inelastic, it takes whatever the price, but instead whether it is luxury demand will be elastic and that if the price increases a little many consumers can do without it.
2) Existence of substitutes. If there are good substitutes for the good demand is very elastic. For example, a small increase in the price of olive oil can cause a large number of housewives decide to use sunflower oil.
3) Importance of good in terms of cost. If the expenditure on that asset is a very small percentage of the income of individuals, their demand will be inelastic. For example, the pen. The variations in price have little influence on the decisions of consumers who want to buy.
4) The passage of time. To almost all goods, the greater the period of time considered the greater the elasticity of demand. It may be that increasing the price of gasoline, its consumption does not change much, but over time may be substituted in some uses for coal, other uses for alcohol, so the decline in demand only noticeable as time passes.
5) The price. eventually have to take into account the elasticity of demand is not the same along the entire curve. It is possible that high prices the demand is less elastic than when prices are lower or vice versa, depending on the product concerned.
There are different kinds of elasticity. The phenomenon we have been discussing under the name of "give it", could have more properly called price elasticity as they tried to measure the sensitivity of demand to price changes. But demand may also be more or less sensitive to other factors. Call income elasticity to measure the sensitivity of the demand for a commodity to changes in consumer income. Call price elasticity to measure the sensitivity of the demand for a commodity to changes in the price of other goods.
As we saw earlier, when an individual's income increases, consumption of all goods increase as well. But that's not always true. There are some goods, the so-called inferior goods, which are characterized by the fact that increasing the income of individuals reduces the use of them. The classic example is that of potatoes or, in general, foods high in starch. With increasing the income of individuals and societies, these foods are replaced with more high-protein, meat, for example. There are other goods, by contrast, the consumption increases more than proportionally with increasing income. They are luxury goods.
To measure sensitivity to changes in real income of individuals using the concept of income elasticity: The percentage by varying the quantity demanded of a good when the consumer's income varies by one percent. In the case of inferior goods, the income elasticity is negative because it causes increased contraction of demand for those. The income elasticity of luxury goods is very high since the variations in income cause large variations in the quantity demanded. The basic goods, as opposed to inferior goods, have the income elasticity of demand positive but very small, in other words, demand is inelastic with respect to income. Finally, normal goods display a unitary income elasticity, ie, its demand will increase at about the same proportion as do the income of individuals.
Relations that exist between goods allow another form of classification. Are called complementary goods that are consumed together, cars and gasoline, canaries and cages. The peculiarity of these assets is that when the price of one decreases the quantity demanded of another. The opposite phenomenon can be observed in the case of substitute goods or substitutable, they can be used alternatively: the olive oil and sunflower oil. In this case the price increase causes an increase in the quantity demanded of the other.
To measure the sensitivity of the demand for a commodity to changes in the price of another cross-elasticity is used: The percentage by varying the quantity demanded of a good when the price of another varies by one percent. Cross-elasticity will be positive if the variations in the price and quantity demanded are in the same direction, ie in the case of substitute goods. As the sense of change is different between price and demand for complementary goods, the price elasticity is negative.
There are some goods whose demand is highly price sensitive, small variations in price cause large variations in the quantity demanded. It says that they have elastic demand. Assets, by contrast, are less price-sensitive demand are inelastic or rigid. In these there can be wide variations in prices without consumers vary the quantities they require. The intermediate case is called unit-elastic.
The elasticity of demand is measured by calculating the percentage that varies the quantity demanded of a good when its price changes by one per cent. If the result of the transaction is greater than one, the demand for that good is elastic, if the result is between zero and one, demand is inelastic.
factors that influence the demand for either more or less elastic are
1) Type of needs met good. If it is of prime necessity demand is inelastic, it takes whatever the price, but instead whether it is luxury demand will be elastic and that if the price increases a little many consumers can do without it.
2) Existence of substitutes. If there are good substitutes for the good demand is very elastic. For example, a small increase in the price of olive oil can cause a large number of housewives decide to use sunflower oil.
3) Importance of good in terms of cost. If the expenditure on that asset is a very small percentage of the income of individuals, their demand will be inelastic. For example, the pen. The variations in price have little influence on the decisions of consumers who want to buy.
4) The passage of time. To almost all goods, the greater the period of time considered the greater the elasticity of demand. It may be that increasing the price of gasoline, its consumption does not change much, but over time may be substituted in some uses for coal, other uses for alcohol, so the decline in demand only noticeable as time passes.
5) The price. eventually have to take into account the elasticity of demand is not the same along the entire curve. It is possible that high prices the demand is less elastic than when prices are lower or vice versa, depending on the product concerned.
There are different kinds of elasticity. The phenomenon we have been discussing under the name of "give it", could have more properly called price elasticity as they tried to measure the sensitivity of demand to price changes. But demand may also be more or less sensitive to other factors. Call income elasticity to measure the sensitivity of the demand for a commodity to changes in consumer income. Call price elasticity to measure the sensitivity of the demand for a commodity to changes in the price of other goods.
As we saw earlier, when an individual's income increases, consumption of all goods increase as well. But that's not always true. There are some goods, the so-called inferior goods, which are characterized by the fact that increasing the income of individuals reduces the use of them. The classic example is that of potatoes or, in general, foods high in starch. With increasing the income of individuals and societies, these foods are replaced with more high-protein, meat, for example. There are other goods, by contrast, the consumption increases more than proportionally with increasing income. They are luxury goods.
To measure sensitivity to changes in real income of individuals using the concept of income elasticity: The percentage by varying the quantity demanded of a good when the consumer's income varies by one percent. In the case of inferior goods, the income elasticity is negative because it causes increased contraction of demand for those. The income elasticity of luxury goods is very high since the variations in income cause large variations in the quantity demanded. The basic goods, as opposed to inferior goods, have the income elasticity of demand positive but very small, in other words, demand is inelastic with respect to income. Finally, normal goods display a unitary income elasticity, ie, its demand will increase at about the same proportion as do the income of individuals.
Relations that exist between goods allow another form of classification. Are called complementary goods that are consumed together, cars and gasoline, canaries and cages. The peculiarity of these assets is that when the price of one decreases the quantity demanded of another. The opposite phenomenon can be observed in the case of substitute goods or substitutable, they can be used alternatively: the olive oil and sunflower oil. In this case the price increase causes an increase in the quantity demanded of the other.
To measure the sensitivity of the demand for a commodity to changes in the price of another cross-elasticity is used: The percentage by varying the quantity demanded of a good when the price of another varies by one percent. Cross-elasticity will be positive if the variations in the price and quantity demanded are in the same direction, ie in the case of substitute goods. As the sense of change is different between price and demand for complementary goods, the price elasticity is negative.
0 comments:
Post a Comment