Research on price elasticity of demand

Elasticity of demand depends on the nature of goods.

Research on price elasticity of demand

Elasticity measures are reported as a proportional or percent change in the variable being studied. The general formula for elasticity, represented by the letter "E" in the equation below, is: Elasticity can be zero, one, greater than one, less than one, or infinite.

Research on price elasticity of demand

When elasticity is equal to one, there is unit elasticity. This means the proportional change in one variable is equal to the proportional change in another variable, or in other words, the two variables are directly related and move together.

When elasticity is greater than one, the proportional change in x is greater than the proportional change in y and the situation is said to be elastic.

Inelastic situations result when the proportional change in x is less than the proportional change in y. Perfectly inelastic situations result when any change in y will have an infinite effect in x.

Finally, perfectly elastic situations result when any change in y will result in no change in x. A special case known as unitary elasticity of demand occurs if total revenue stays the same when prices change.

Elasticity is typically defined in terms of changes in total revenue since that is of primary importance to managers, CEOs, and marketers. For managers, a key point in the discussions of demand is what happens when they raise prices for their products and services. It is important to know the extent to which a percentage increase in unit price will affect the demand for a product.

With elastic demand, total revenue will decrease if the price is raised. With inelastic demand, however, total revenue will increase if the price is raised.

The possibility of raising prices and increasing dollar sales total revenue at the same time is very attractive to managers.

This occurs only if the demand curve is inelastic. Here total revenue will increase if the price is raised, but total costs probably will not increase and, in fact, could go down.

Research on price elasticity of demand

Since profit is equal to total revenue minus total costs, profit will increase as price is increased when demand for a product is inelastic. It is important to note that an entire demand cure is neither elastic or inelastic; it only has the particular condition for a change in total revenue between two points on the curve and not along the whole curve.

Substitutes are products that offer the buyer a choice. For example, many consumers see corn chips as a good or homogeneous substitute for potato chips, or see sliced ham as a substitute for sliced turkey.

The more substitutes available, the greater will be the elasticity of demand.Division of Price and Index Number Research. The Division was created in in response to the Stigler Commission Report on Federal price statistics. First order travel, energy and carbon impacts of vehicle automation estimated using a decomposition framework.

• Energy use affected via changes in vehicle design, traffic flow efficiency, and travel demand. 41) summarizes a few studies on the price elasticity of demand for gasoline by informing us that any given 10 percent increase in its price will result in a decrease of less than 3 percent in.

Income elasticity of demand shows the effect of a change in income on quantity demanded by consumers, and helps understand both normal and inferior goods.

In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris is measured as the percentage change in quantity demanded for the first good that occurs in response to a percentage change in price of the second good.

Game theory has its origins in the midth century with the publication of Cournot's Researches into the Mathematical Principles of the Theory of Wealth.

Elasticity - percentage, Elasticity for managerial decision making