Economics Elasticity Essay -- Price Elasticity of Demand

Businesses know that they face demand curves, but seldom do they knowwhat these curves look like. Yet sometimes a assembly line needs to have agood idea of what part of a demand curve looks like if it is to urinategood decisions. If Ricks Pizza raises its monetary values by ten percent, what get out happen to its revenues? The answer depends on how consumers willrespond. lead they cut back purchases a little or a jalopy? This questionof how responsive consumers are to price transfigures involves the economicconcept of cracking. ginger nut is a measure of responsiveness. Two excogitates are importanthere. The word measure means that snap fastener results are reported asnumbers, or elasticity coefficients. The word responsiveness meansthat there is a stimulus-reaction involved. near change or stimuluscauses people to react by changing their behavior, and elasticitymeasures the extent to which people react.The most common elasticity meter is that of price elasticity ofdemand. It measures how much consumers respond in their buyingdecisions to a change in price. The basic formula used to determineprice elasticity isIf price increases by 10%, and consumers respond by change magnitudepurchases by 20%, the equation computes the elasticity coefficient as-2. The result is prohibit because an increase in price (a positivenumber) leads to a decrease in purchases (a negative number). Becausethe law of demand says it will always be negative, numerous economistsignore the negative sign, as we will in the following discussion.An elasticity coefficient of 2 shows that consumers respond a greatdeal to a change in price. If, on the other hand, a 10% change inprice causes only a 5% change in sales, the elasticity coefficient... ...ticalsupply curve. For example, if on December 1 the price of applesdoubles, there will be minimal effect on the number of applesavailable to the consumer. Producers dischargenot make adjustments until anew growing season begins. In the s hort run, producers raft use theirfacilities more or less intensively. In the apple example, they dissolvevary the amounts of pesticides, and the amount of labor they use topick the apples. Finally, in the gigantic run not only can producerschange their facilities, but they can leave the industry or newproducers may enter it. In our apple example, new orchards can beplanted or experienced ones destroyed.Source ConsultedVitali Bourchtein The Principles of Economics Textbook An Analysis of Its Past, Present & Future whitethorn 2011 Web 15 May 2015.http//www.stern.nyu.edu/sites/default/files/assets/documents/con_042988.pdf