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Elasticity Essay

862 words - 4 pages


Presented to:-
Dr. Hamde Abd-el-Azem

Sadat academy for management sciences

Done by:-
Ahmed gamal Ezz el-Din
G: group 4
S: Managerial economics

The degree to which a demand or supply curve reacts to a change in price is the curve's elasticity. Elasticity varies among products because some products may be more essential to the consumer. Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases. Conversely, a ...view middle of the document...

It is necessary for a firm to know how quickly, and effectively, it can respond to changing market conditions, especially to price changes. The following equation can be used to calculate PES.

While the coefficient for PES is positive in value, it may range from 0, perfectly inelastic, to infinite, perfectly elastic.
The positive sign reflects the fact that higher prices will act an incentive to supply more. Because the coefficient is greater than one, PES is elastic and the firm is responsive to changes in price. This will give it a competitive advantage over its rivals.

Price Elasticity of Demand :-
Price elasticity of demand (PED) shows the relationship between price and quantity demanded and provides a precise calculation of the effect of a change in price on quantity demanded. The following equation enables PED to be calculated.

*The negative sign indicates that P and Q are inversely related, which we would expect for most price/demand relationships.

 Less than one, which means PED is inelastic.
 Greater than one, which is elastic .
 Zero (0), which is perfectly inelastic.
 Infinite (∞), which is perfectly elastic.
Cross Elasticity of Demand :-
cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good. For example, if, in response to a 10% increase in the...

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