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Fundamentals of Economics

By:   •  November 23, 2018  •  Essay  •  473 Words (2 Pages)  •  149 Views

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Assignment :fundamentals of economics


  1.  explain the elasticity of demand with the help of an example.

Definition of elasticity of demand

Demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables, such as the prices and consumer income. Demand elasticity is calculated by taking the percent change in quantity of a good demanded and dividing it by a percent change in another economic variable. A higher demand elasticity for a particular economic variable means that consumers are more responsive to changes in this variable, such as price or income.

 1. When the price of such commodity changes, the demand will be greater. If the price changes to 1%, then the demand change will exceed 1%. The effect of price on demand is obvious. The general old man, the old lady go to supermarket to snap up is this kind of, because of rich flexibility, say with respect to price sensitive.

Unit elasticity: that is, the absolute value of the elastic coefficient. As a result of the change in the price of commodities, the demand will be changed in the same degree. The price change is 1%, so the demand is 1%.

Lack of elasticity: the absolute value of elasticity is less than 1. Price fluctuation has less impact on demand. Price change 1%, demand change less than 1%.

The elastic coefficient is equal to 0 and it's called completely inelastic, and whatever the price changes, the demand is constant.

Gold and silver jewelry elastic won't buy the high price, daily necessities inelastic even rising prices will also have to buy, now the house price inelastic demand is rigid demand price rising but nothing less.

The more the goods substitute, the more the substitution, when the price of a commodity increases, the more easily the consumer turns to other goods, so the more elasticity, the less the other. It's very versatile, and if a product is widely used, when the price of the product goes up, then the consumer is going to be able to reduce the demand properly, and then the bigger the elasticity, the smaller the other.

1.2 what is the difference between elastic and inelastic demand ?explain with the help of diagram.


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