Question

how to write a reflection in elasticity economics

write a reflection of elasticity

some examples of how sensitive are consumers to a change in price,how much less will they buy if prices are raised?

How much will they buy more if the prices are lowered?

Revenue, what happens to revenues is the prices change?

Answer 1

1. In economics, price elasticity is a measure of how reactive the marketplace is to a change in price for a given product. However, price elasticity works two ways. While price elasticity of demand is a reflection of consumer behavior as a result of price chance, price elasticity of supply measures producer behavior. Each metric feeds into the other. Both are important when analyzing marketplace economics, but it is price elasticity of demand that companies look to when establishing sales strategy.

2. In economics, elasticity is the measurement of the proportional change of an economic variable in response to a change in another. It shows how easy it is for the supplier and consumer to change their behavior and substitute another good, the strength of an incentive over choices per the relative opportunity cost.

Elasticity can be quantified as the ratio of the percentage change in one variable to the percentage change in another variable, when the latter variable has a causal influence on the former. A more precise definition is given in terms of differential calculus. It is a tool for measuring the responsiveness of one variable to changes in another, causative variable. Elasticity has the advantage of being a unitless ratio, independent of the type of quantities being varied. Frequently used elasticities include price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production and elasticity of intertemporal substitution.

Elasticity is one of the most important concepts in neoclassical economic theory. It is useful in understanding the incidence of indirect taxation, marginal concepts as they relate to the theory of the firm, and distribution of wealth and different types of goods as they relate to the theory of consumer choice. Elasticity is also crucially important in any discussion of welfare distribution, in particular consumer surplus, producer surplus, or government surplus.

3 and 4. Price sensitivity can basically be defined as being the extent to which demand changes when the cost of a product or service changes.

The price sensitivity of a product varies with the level of importance consumers place on price relative to other purchasing criteria. Some people may value quality over price, making them less susceptible to price sensitivity. For example, customers seeking top-quality goods are typically less price sensitive than bargain hunters, so they're willing to pay more for a high-quality product.

By contrast, people who are more sensitive to price may be willing to sacrifice quality. These individuals will not spend more for something like a brand name, even if it has a higher quality over a generic store brand product.

Price sensitivity also varies from person to person, or from one consumer to the next. Some people are able and willing to pay more for goods and services than others. Companies and governments are also able to pay more compared to individuals.

The law of demand states that if all other market factors remain constant, a relative price increase leads to a drop in the quantity demanded. High elasticity means consumers are more willing to buy a product even after price increases. Inelastic demand means even small price increases may significantly lower demand.

In a perfect world, businesses would set prices at the exact point where supply and demand produce as much revenue as possible. This is referred to as the equilibrium price. Although this is difficult, computer software models and real-time analysis of sales volume at given price points can help determine equilibrium prices. Even if a small price rise diminishes sales volume, the relative gains in revenue may overcome a proportionally smaller decline in consumer purchases.

5. The first thing to note is that revenue is maximized at the point where elasticity is unit elastic.

If elastic: The quantity effect outweighs the price effect, meaning if we decrease prices, the revenue gained from the more units sold will outweigh the revenue lost from the decrease in price.

If inelastic: The price effect outweighs the quantity effect, meaning if we increase prices, the revenue gained from the higher price will outweigh the revenue lost from less units sold.