The paper "Effects of Subsidizing Inputs Required to Make the Vaccine on Demand" is an outstanding example of a micro and macroeconomic assignment. According to Mankiw (2011) price elasticity of demand deals with determining the changes in quantity demanded as a result of changes in price. It measures the percentage change in quantity demanded as a result of a one percent change in price. In relation to price, the demand for a product can either be elastic, inelastic, or unit elastic. Demand is elastic if a small change in price results in a big change in quantity demanded.
Inelastic demand a small increase in the price of a commodity leads to a subsequent large decrease in quantity demanded of the commodity. On the other hand, inelastic demand occurs when a change in price leads to a small change in quantity demanded. In this case, an increase in the price of the commodity leads to a small decrease in the quantity demanded of the product. Unit elastic demand arises when a change in price leads to an exactly equal change in the quantity demanded.
In this case, a one percent increase in price leads to a one percent decrease in quantity demanded. Thus, revenue remains unchanged as the increased price is offset by the decreased demand. The taxi drivers assume that the demand for taxi rides is inelastic. This means that when they increase the price associated with their services there will only be a slight decline in the demand for the taxi rides. The increase in the fares will be accompanied by a small percentage decline in the demand for taxi services. Bernanke (2003) argues that the price elasticity of demand increases when a product has a variety of substitutes that are readily available.
Commodities that have closely related substitutes have a tendency of being more elastic as consumers can easily switch to other related goods. The taxi drivers assume that there is no close substitute for their services. This is because the taxis are readily available and convenient to travel within major Australian cities. The fact that passengers can find them easily and with ease as compared with other means of transport makes them not have close substitutes.
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