Essays on The Concept of Price Elasticity of Demand Article

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The paper "The Concept of Price Elasticity of Demand" is an outstanding example of a business article. As depicted in the above diagrams of elastic, unitary and inelastic demand curves one can see the slope of the curve is getting steeper when the price elasticity of demand is decreasing. In addition, in the elastic demand curve diagram, the total revenue is increasing when the price reduces from P1 to P2 because the quantity is increasing more compared to the price reduction and therefore the total revenue increases if the demand is elastic.

In the second diagram when the price elasticity is equal to 1, the total revenue does not change because the price change percentage and quantity change percentage is equal. It can be seen from the unitary price elasticity demand curve diagram when the price is reduced from P1’ to P2’ the quantity is increased by the same percentage from Q1’ to Q2’ . And the total revenue does not change when the price reduced or increased. However, as depicted in the inelastic demand curve when the price is reduced from P’ 1 to P’ 2 the quantity demanded is increased by a lesser percentage than the price reduction and therefore the total revenue is reduced.

Therefore the consequences of price increase or reduction when the price elasticity is elastic, unitary and inelastic can be summarized as below. Price Elasticity of Demand, Price change total revenue change   Elasticity greater than price increase reduction in revenue Or elastic demand price reduction increase in revenue Elasticity is equal to 1 price increase no change in revenue Or Elasticity is unitary price reduction no change in revenue Elasticity less than 1 price increase in revenue Or inelastic demand price reduction in revenue Factors affecting price elasticity of demand The price elasticity of demand depends on several factors.

The most important factors are whether the product concerned is produced by a monopoly industry or by a competitive industry structure where there exist many substitutes.  

References

Assignment 1

Keat, P and Young, P. Chapter 4 Demand Elasticity. (Goggle) [Internet]

Available at: http://libweb.anglia.ac.uk/referencing/harvard.htm?harvard_id=39#39

[Accessed: 25 November 2007]

Tutor 2u. Price Elasticity of Demand. (tutor 2u.net) [Internet]

Available at: http://www.wdcweb.info/clydebank/documents/2_-_Price_Elasticity_of_Demand.ppt [Accessed: 25 November 2007]

Tutor 2u. Price Elasticity of Demand. (tutor 2u.net) [Internet]

Available at: http://www.tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-demand.html [Accessed: 25 November 2007]

Assignment 2

Contract Formation – Offer and Acceptance. (law.anu.edu.au) [internet]

Available at: http://law.anu.edu.au/colin/Lectures/off_acc.htm [Accessed: 25 November 2007]

Stott, D. Should the Postal Acceptance Rule be Applied to E-mail?. (www.alsa.asn.au)

Available at: http://www.alsa.asn.au/files/acj/1996/stott.html [Accessed: 25 November 2007]

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