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Essay / Research Paper Abstract
This 4 page paper looks at the concept of elasticity, looking at own price elasticity of demand, cross price elasticity of demand and income elasticity of demand, the way in which goods may be substitutes using a fictitious scenario and if a firm should implement a price decrease to increase sales for an elastic product. The bibliography cites 1 source.
Page Count:
4 pages (~225 words per page)
File: TS14_TEelastqu.doc
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Unformatted sample text from the term paper:
number of different elasticitys that can be considered, the most basic is the own price elasticity of demand. This is a calculation that indicates the degree to which price changes
will impact on the demand for a good. The formula for own price elasticity of demand is the percentage change in the quantity demanded divided by percentage change in price.
Where the result is 1, this is a perfectly elastic good, where the proportional increase or decrease in price will see a directly proportional decrease or increase in demand. For
example, a 10% increase in price will result in a 10% decrease in demand (Nellis and Parker, 2010). Where the result is greater than 1 the response to the price
change in demand will be greater than the change in price and the good is seen as elastic, where the result is less than 1, the good is inelastic and
the changes that are seen will be less than the change in price, this can mean increasing price will increase overall revenue, as the decrease in quantity demanded will be
the proportionally less, this is often seen with essential goods, such as utilities and fuel and addictive items such as tobacco, or items that have a very low cost, such
as salt (Nellis and Parker, 2010). The graph below shows the relationship between price and demand for an elastic and an inelastic good The concept of elastic and
inelastic can be applied to other influences, with similar approaches. Cross price elasticity of demand looks at the impact that demand for other goods and changes in the demand
for that good will have on the own good, this may be positive, where there is a complimentary good, for example, the sale of cranberries may increase when the
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