Please Summarize all parts in 3 paragraphs ( each part= paragraph) Part one: What Is Price Elasticity of Demand? Price elasticity of demand is a measurement of the change in the consumption of a product in relation to a change in its price. Expressed mathematically, it is: Price Elasticity of Demand = Percentage Change in Quantity Demanded ÷ Percentage Change in Price. Economists use price elasticity to understand how supply and demand for a product change when its price changes.1 Like demand, supply also has an elasticity, known as price elasticity of supply. Price elasticity of supply refers to the relationship between change in supply and change in price. It’s calculated by dividing the percentage change in quantity supplied by the percentage change in price. Together, the two elasticities combine to determine what goods are produced at what prices. Economists have found that the prices of some goods are very inelastic. That is, a reduction in price does not increase demand much, and an increase in price does not hurt demand, either. For example, gasoline has little price elasticity of demand. Drivers will continue to buy as much as they have to, as will airlines, the trucking industry, and nearly every other buyer. Other goods are much more elastic, so price changes for these goods cause substantial changes in their demand or their supply. Not surprisingly, this concept is of great interest to marketing professionals.1 It could even be said that their purpose is to create inelastic demand for the products that they market. They achieve that by identifying a meaningful difference in their products from any others that are available. If the quantity demanded of a product changes greatly in response to changes in its price, it is elastic. That is, the demand point for the product is stretched far from its prior point. If the quantity purchased shows a small change after a change in its price, it is inelastic. The quantity didn’t stretch much from its prior point. Part two: Factors That Affect Price Elasticity of Demand Availability of Substitutes The more easily a shopper can substitute one product for another, the more the price will fall. For example, in a world in which people like coffee and tea equally, if the price of coffee goes up, people will have no problem switching to tea, and the demand for coffee will fall. This is because coffee and tea are considered good substitutes for each other. Urgency The more discretionary a purchase is, the more its quantity of demand will fall in response to price increases. That is, the product demand has greater elasticity.Say you are considering buying a new washing machine, but the current one still works; it’s just old and outdated. If the price of a new washing machine goes up, you’re likely to forgo that immediate purchase and wait until prices go down or the current machine breaks down. The less discretionary a product is, the less its quantity demanded will fall. Inelastic examples include luxury items that people buy for their brand names. Addictive products are quite inelastic, as are required add-on products, such as inkjet printer cartridges. One thing all these products have in common is that they lack good substitutes. If you really want an Apple iPad, then a Kindle Fire won’t do. Addicts are not dissuaded by higher prices, and only HP ink will work in HP printers (unless you disable HP cartridge protection). Duration of Price Change The length of time that the price change lasts also matters.3 Demand response to price fluctuations is different for a one-day sale than for a price change that lasts for a season or a year. Clarity of time sensitivity is vital to understanding the price elasticity of demand and for comparing it with different products. Consumers may accept a seasonal price fluctuation rather than change their habits. Part three: (all questions in one paragraph) What makes a product elastic? If a price change for a product causes a substantial change in either its supply or its demand, it is considered elastic. Generally, it means that there are acceptable substitutes for the product. Examples would be cookies, luxury automobiles, and coffee. What makes a product inelastic? If a price change for a product doesn’t lead to much, if any, change in its supply or demand, it is considered inelastic. Generally, it means that the product is considered to be a necessity or a luxury item for addictive constituents. Examples would be gasoline, milk, and iPhones. What is the importance of price elasticity of demand? Knowing the price elasticity of demand of a good allows someone selling that good to make informed decisions about pricing strategies. This metric provides sellers with information about consumer pricing sensitivity. It is also key for makers of goods to determine manufacturing plans, as well as for governments to assess how to impose taxes on goods.
Please Summarize all parts in 3 paragraphs ( each part= paragraph)
Part one:
What Is
Price elasticity of demand is a measurement of the change in the consumption of a product in relation to a change in its price. Expressed mathematically, it is:
Price Elasticity of Demand = Percentage Change in Quantity Demanded ÷ Percentage Change in Price.
Economists use price elasticity to understand how
Economists have found that the prices of some goods are very inelastic. That is, a reduction in price does not increase demand much, and an increase in price does not hurt demand, either. For example, gasoline has little price elasticity of demand. Drivers will continue to buy as much as they have to, as will airlines, the trucking industry, and nearly every other buyer.
Other goods are much more elastic, so price changes for these goods cause substantial changes in their demand or their supply.
Not surprisingly, this concept is of great interest to marketing professionals.1 It could even be said that their purpose is to create
If the quantity demanded of a product changes greatly in response to changes in its price, it is elastic. That is, the demand point for the product is stretched far from its prior point. If the quantity purchased shows a small change after a change in its price, it is inelastic. The quantity didn’t stretch much from its prior point.
Part two:
Factors That Affect Price Elasticity of Demand
Availability of Substitutes
The more easily a shopper can substitute one product for another, the more the price will fall. For example, in a world in which people like coffee and tea equally, if the price of coffee goes up, people will have no problem switching to tea, and the demand for coffee will fall. This is because coffee and tea are considered good substitutes for each other.
Urgency
The more discretionary a purchase is, the more its quantity of demand will fall in response to price increases. That is, the product demand has greater elasticity.Say you are considering buying a new washing machine, but the current one still works; it’s just old and outdated. If the price of a new washing machine goes up, you’re likely to forgo that immediate purchase and wait until prices go down or the current machine breaks down.
The less discretionary a product is, the less its quantity demanded will fall. Inelastic examples include luxury items that people buy for their brand names. Addictive products are quite inelastic, as are required add-on products, such as inkjet printer cartridges.
One thing all these products have in common is that they lack good substitutes. If you really want an Apple iPad, then a Kindle Fire won’t do. Addicts are not dissuaded by higher prices, and only HP ink will work in HP printers (unless you disable HP cartridge protection).
Duration of Price Change
The length of time that the price change lasts also matters.3 Demand response to price fluctuations is different for a one-day sale than for a price change that lasts for a season or a year. Clarity of time sensitivity is vital to understanding the price elasticity of demand and for comparing it with different products. Consumers may accept a seasonal price fluctuation rather than change their habits.
Part three: (all questions in one paragraph)
What makes a product elastic?
If a price change for a product causes a substantial change in either its supply or its demand, it is considered elastic. Generally, it means that there are acceptable substitutes for the product. Examples would be cookies, luxury automobiles, and coffee.
What makes a product inelastic?
If a price change for a product doesn’t lead to much, if any, change in its supply or demand, it is considered inelastic. Generally, it means that the product is considered to be a necessity or a luxury item for addictive constituents. Examples would be gasoline, milk, and iPhones.
What is the importance of price elasticity of demand?
Knowing the price elasticity of demand of a good allows someone selling that good to make informed decisions about pricing strategies. This metric provides sellers with information about consumer pricing sensitivity. It is also key for makers of goods to determine manufacturing plans, as well as for governments to assess how to impose taxes on goods.
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