Price elasticity of demand?? (1 Viewer)

[lilkiwifruit]

I'm studying for my prelim exams for economics and I realised that I don't understand that stuff about total outlay,,... how can you work out that something is elastic or inelastic if they give you a bunch of numbers under headings like QTY demanded and price ???

 

[caps04]

Elasticity of demand

Hi there Kiwi

The price elasticity of demand is basically the sensitivity of quantity demanded due to changes in price (ie: how much does an increase in price effect the quantity demanded).

What you are looking for in the total outlay method is infact total revenue.
Revenue = price x quantity

You will notice that as price increases, the quantity demanded decreases. If the demand for a product is relatively price inelastic, then an increase in price will cause an increase in total revenue. Simply multiply across your table at the various price levels given and see what happens!

Should an increase in price cause a decrease in total revenue, then the demand for the product is said to be elastic (ie: highly influenced by price).

Examples of products that are fairly price inelastic are petrol and cigarettes (if price goes up, the fall in quantity demanded is covered by the price increase). This is because everyone needs petrol and those unfortunates who smoke are addicted and will want cancer sticks regardless of their price.

I hope this helps. Enjoy the remainder of the weekend.

 

[lilkiwifruit]

Hi there Kiwi

The price elasticity of demand is basically the sensitivity of quantity demanded due to changes in price (ie: how much does an increase in price effect the quantity demanded).

What you are looking for in the total outlay method is infact total revenue.
Revenue = price x quantity

You will notice that as price increases, the quantity demanded decreases. If the demand for a product is relatively price inelastic, then an increase in price will cause an increase in total revenue. Simply multiply across your table at the various price levels given and see what happens!

Should an increase in price cause a decrease in total revenue, then the demand for the product is said to be elastic (ie: highly influenced by price).

Examples of products that are fairly price inelastic are petrol and cigarettes (if price goes up, the fall in quantity demanded is covered by the price increase). This is because everyone needs petrol and those unfortunates who smoke are addicted and will want cancer sticks regardless of their price.

I hope this helps. Enjoy the remainder of the weekend.

Thank you so much!!!!!!

 

[sk8ie_boi]

ah... good work proje_04 ... man I totally forgot about dis elastic thingy...

 

[klaw]

Inelastic goods are usually necessities, because they have to buy it no matter what the price is. Elastic goods are usually luxuries, because they can do without the good.