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Egt Task 1 Essay

1723 words - 7 pages

The different forms of elasticity are directly related to the change in prices and quantity demanded for a product. The price elastic of demand is sensitive to differences in price changes that happen and quantity that is demanded. If the demand sensitivity is high the product will be high price elastic. If this happens the change in price would change the amount of demand for the product this would cause a change that would end up larger in proportion. When the product that is in demand has no sensitivity to the different price change for the product it is described as being price inelastic. When this happens the change of the price has the results of a change in a smaller demand, ...view middle of the document...

When a consumer’s income has an increase the demand has an increase. When the income has a decrease the demand will also have a decrease. When looking at inferior products the income elasticity of demand is negative. So when a consumer’s income has an increase the demand would decrease. This is a result of the consumers having more disposable income and would purchase a better quality product that would increase the cost.
With price elasticity of demand you will notice how the coefficient will be a positive with it being above one. This relates to how much a percentage of a products quantity is in demand. That results in a greater figure than the amount of difference in price of the product. If coefficients fall into the negative meaning it has dropped below one, this directly relates to a change in the amount of percentage of quantity that is being demanded has reduced less than the change in the percentage of price. If the price of elasticity demanded is equal with one, this result in the percent of a change for the amount of quantity that has been demanded is equivalent with the equal percent of the price change. When looking at cross elasticity of demand, and coefficient of a complementary product will end up being negative. The substitute product for the coefficient will have a result of being positive this is known as “Cross Elasticity of Demand”. When looking at how income elasticity of demand reacts to coefficient with a product considered normal it will be in the positive. This will make the product that is inferior to fall into the negative. If the coefficient goes into the positive range with a value exceeding one the products would be considered superior and referred to “Income Elasticity of Demand”.
When reviewing elasticity it is important to note there is three different types. There is “cross price elasticity”, along with “income elasticity” the third is “price elasticity”. Each with an individual purpose for the different “elasticity of demand” is to measure how the response of change reflects in the quantity of a demanded product based on different changes in each factor. All of the factors have a change in the price for each product along with a change in the amount of income a consumer has available. When those items are factored in, it makes it easier to measure what the changes will be and the quantity of a product will be demanded based on those factors. If a product has an available substitute the product would be considered elastic. When the price increases for this product, the consumer will make the change to a different product to get the same enjoyment from the product that would normally be purchased. If the prices of some products increase the demand of quantity will have a decrease. If a product has no other comparable alternative this would be inelastic demand. When a consumer uses a large portion of their income on a product the more the elasticity increases. Most consumers will purchase a good that...

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