Use of price elasticity income elasticity of demand for businesses essay
By understanding these concepts, it will be more effective in understanding the price strategies used by producers to raise total revenue.
A fashionable product is a rather broadly defined good. The government also has to think about price elasticity of demand when itcomes to the budget and the increase of taxes. It refers to the relationship between a change in the price of a particular good and a change in its quantity demanded, in other words, the price elasticity of demand is the measure of variable reaction to change in another variable.
Price elasticity of demand
The civil unrest, which not only affected the people, affected many business firms to the extent where several companies closed down. In this case, PED is likely to be of limited use to the firm. The first determinant of price elasticity of demand is substituted for the product, which is the more substitutes, the more elastic the demand The estimate of demand is typically confined to a particular period of time, such as a month, quarter or year. For price elasticity, firms may use them to derive price strategies. Hereafter I refer higher education institutions. If the price of Iphone increases, consumers will switch over to Samsung causing the sales to increase. There are many influences determining weather products will be elastic or inelastic for example if there are many close substitutes for a product, demand for it will tend to be elastic. The government also has to think about price elasticity of demand when itcomes to the budget and the increase of taxes. It refers to the relationship between a change in the price of a particular good and a change in its quantity demanded, in other words, the price elasticity of demand is the measure of variable reaction to change in another variable. However, total revenue will not rise if there is no excess capacity to increase production. For example, if demand is price elastic, a fall in price will lead to a larger proportionate increase in quantity demanded resulting in an increase in total revenue. In the case of PED, economists are concerned with whether the value is greater or less than one.
For example, Iphone and Samsung. Therefore when they have an inelastic product they can raise the price and still end up with a better revenue and larger profit margins.
Price elasticity of demand is a measure of the degree of responsiveness or sensitive of consumers to a change in price. Work Cited…………………………………………………………………………….
Discuss the importance of income elasticity of demand concept in business economics
Price elasticity of demand is another concept showing a change in the responsiveness of a good or service due to a change in its price The PED for a good is a measure of the degree of responsiveness of the quantity demanded to a change in the price, ceteris paribus. Monday, 4 March ESSAY 4 a Explain, with examples, the significance of a value of a good's cross-elasticity of demand in relation to its substitutes and complements. Although PED can be more useful than YED and XED to a firm that produces a fashionable product such as smartphones for making business decisions, its usefulness depends on several factors such as the objective of the firm. Data from past records may no longer be relevant to calculating elasticities of demand as some of the determinants of demand may have changed. Income elasticity of demand will only affect certain businesses that deal withluxury goods with a positive income elasticity of demand. Hereafter I refer higher education institutions.
Therefore, if a firm that produces smartphones predicts an economic expansion which is a period of time during which national output and hence national income is rising, it should increase its production capacity in order to be able to meet the higher demand when the economic expansion comes.
It seems that this would be a very up front and easy question to answer, however, there are many aspects of demand that must be understood.
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