A+ SOLUTION including Elasticity of demand graph demostration - 87366

Solution Posted by
academicgeek

academicgeek

Rating : (8)A+
Solution Detail
Price: $20.00
Request Description
0
Solution Description

Price elasticity of demand expresses the response of quantity demanded of a good to a change in its price, given the consumers income, his taste and prices of all other goods. In other words, it is measured as a percentage change in quantity demanded divided by the percentage change in price, other things being equal.

Ep = %change in quantity demanded / 5 change in price

   = (Change in quantity/ Original quantity) * (Original Price / Change in price)

 

There are a number of factors which determines the price elasticity of demand. Some of them are discussed as follows –

 

1.      Price of the commodity: Ceteris Paribus (i.e. other things remaining unchanged) the demand for a commodity is inversely related with the price of a commodity. Thus as the price of a commodity increases the demand for the commodity also increases and vice versa.

 

2.      Price of Related goods: Related goods can be of two types –

(1) Complementary Goods

(2) Substitute Goods.