Graphical representations[ edit ] Although it is normal to regard the quantity demanded and the quantity supplied as functions of the price of the goods, the standard graphical representation, usually attributed to Alfred Marshallhas price on the vertical axis and quantity on the horizontal axis.
The essay addresses several variants of elasticity along with definitions, calculations, and examples. A large portion of this essay covers price, cross, and income elasticities of demand.
The author devotes an ample amount of attention to those demand elasticities striving to alleviate learning difficulties.
Frequently, students encounter problems associated with line graph characteristics, expenditure and revenue changes, and elasticity determinants. The article also presents price elasticity of supply and its comparative relevance to those who incur the tax burden on some items. Elasticity Overview Elasticity is a concept of central importance to business, marketing, and economics.
Studies in economics begin by expressing the importance of the ceteris paribus translation means all else is held constant assumption and by focusing on relationships between the possible prices of an item and the quantities consumers are willing and able to purchase at each price; likewise, the quantities suppliers are willing and able to produce.
On the consumer or demand side, students learn very early in their coursework that an inverse relationship exists between price and quantity in accordance with the Law of Demand. Relatively speaking, smaller amounts are in demand at higher prices and vice versa.
On the producer or supply side, they learn that a positive relationship exists according to the Law of Supply.
Whether one chooses to focus on demand or on supply, elasticity is a concept that helps us to understand in precise terms exactly how much quantity changes in response to a price change. Many students who complete and evaluate introductory courses in economics for non-business majors find the elasticity topic easy to comprehend.
In addition, they report that the topic makes perfect sense to Economics price elasticity of demand essay and is highly relevant to their everyday exchanges. However, they report having difficulties mastering the varied types price, income, and cross of elasticity. To overcome those obstacles they encourage other students to elicit examples from their professors and to practice calculating, interpreting, and applying elasticity.
Furthermore, those contexts usually require readers to have an advanced understanding of economics and other business disciplines. In a demonstration of how the elasticity concept is relevant to marketing, Dickinson makes the case that text book presentations of elasticity provide a weak foundation for studying price-quantity interactions and for simulating behavioral complexities of consumers in the marketplace.
Applications Price Elasticity of Demand Cigarette smokers, beer drinkers, and motor vehicle drivers are consumers whom are likely to identify most readily with the elasticity concept. Examples pertaining to alcohol and tobacco will follow later, but gasoline prices serve as an excellent example for starters.
Motor vehicle drivers these days probably retain their awareness of the daily price for gasoline and its fluctuations during any given period.
Furthermore, it is likely that these consumers will purchase greater quantities when the price of gasoline falls and fewer quantities when the price rises. Though most dislike rising gasoline prices and generate some noise about it, the evidence strongly suggests that consumer demand is unresponsive or inelastic as they tend to purchase the same amounts over time irrespective of price.
To explore this observation further, students need to understand demand elasticity coefficients, calculate them, and determine whether demand for gasoline is truly inelastic.
Research on price elasticity of demand for gasoline also shows the coefficient is 0. Calculations of the elasticity coefficient involve division of the percentage change in quantity demanded by the percentage change in price.
The coefficient is unit free and its basic formula is: Readers of textbooks will find variants in the formula that are merely designed to accommodate calculations whether one holds an interest in the observing the elasticity at the starting point, the endpoint, or somewhere near the middle of those two points and when facing different shapes of the line that represents all the price-quantity combinations.
Another justification for omitting the negative sign is to simplify interpretations of a price elasticity of demand coefficient by examining it as an absolute term.
In the broadest sense, we can think about and talk about elasticity of a specific item at its extremes along a demand spectrum. The demand for an item is either elastic, inelastic, or unitary elastic when the respective coefficient as an absolute term is greater than one, less than one, or equal to one.
The coefficient in the gasoline example is less than one, which informs us that the demand for gasoline is inelastic; in other words, consumers are unresponsive to changes in the price of gasoline. We generally dislike the price hike, but collectively gasoline consumers maintain their purchase levels.
Think of the larger array of items that you purchase on a regular basis. My guess is that readers of this article, like other consumers, are more responsive to changes in price for some items and not so for other items.
In absolute terms, price elasticity of demand coefficients range between zero and infinity extending outwardly from unitary elasticity, which is where the coefficient is equal to one. Those extremes carry specific names.
At one extreme, your purchases of an item will cease or go to zero quantity when a price increase occurs. Demand is perfectly elastic in this instance.
At another extreme, your purchases of an item will remain the same regardless of price.Joan Robinson, in full Joan Violet Robinson, née Maurice (born October 31, , Camberley, Surrey, England—died August 5, , Cambridge, Cambridgeshire), British economist and academic who contributed to the development and furtherance of Keynesian economic theory..
Joan Maurice studied at the University of Cambridge, earning a degree in economics in (a) Distinguish between the concepts of price elasticity of demand, income elasticity of demand and cross elasticity of demand.  (b) Discuss the usefulness of the concepts of elasticity of demand to a firm that produces a fashionable product.
Price Elasticity Of Demand Price Elasticity of Demand is the quantitative measure of consumer behavior whereby there is indication of response of quantity demanded for a product or service to change in price of the good or service (Mankiw,). The Price Elasticity of Demand is calculated using either the point method or the midpoint method.
SECTION A: THE MARKET SYSTEM Part 1 Demand and supply. Chapter 1: The market system Chapter 2: The demand curve Chapter 3: Factors that affect demand Chapter 4: The supply curve Chapter 5: Factors that affect supply Chapter 6: Market equilibrium Chapter 7: Price elasticity of demand Chapter 8: Price elasticity of supply Chapter 9: Income elasticity Chapter Applications of elasticity.
Price elasticity varies with the amount of time the consumer takes to respond to the price change (Ranson, et al.
). Generally demand becomes more elastic in the long run since the prices will increase at that time. Box and Cox () developed the transformation. Estimation of any Box-Cox parameters is by maximum likelihood.
Box and Cox () offered an example in which the data had the form of survival times but the underlying biological structure was of hazard rates, and the transformation identified this.