Elasticity of Demand Overview

Questions and Answers

The total quantity of goods available for sale

The difference between demand and supply

How sensitive quantity demanded is to changes in price (correct)

The relationship between demand and income

Consumables like cigarettes

Nondurable goods like food

Daily necessities like water

Durable goods like cars (correct)

It only affects price stability

It has no effect on elasticity

It makes demand more inelastic

It makes demand more elastic (correct)

Low availability of substitutes Signup and view all the answers

Car Signup and view all the answers

When consumers are less familiar with a product Signup and view all the answers

Demand tends to decrease regardless of price changes Signup and view all the answers

Using the elasticity coefficient formula Signup and view all the answers

Study Notes

Elasticity of demand measures sensitivity of quantity demanded to price changes.
Elastic demand occurs when an increase in price leads to a significant decrease in quantity demanded.

Possibility of Postponement:
- Goods with delayed consumption have more elastic demand.
- Immediate needs, like medicine, exhibit inelastic demand due to urgency.
Durability of the Commodity:
- Durable goods (e.g., cars) show elastic demand in the long term as consumers have time to assess budget and options.
- Nondurable goods (e.g., bread) tend to have inelastic demand short-term since they are essential and cannot be postponed.
Habits:
- Regular consumption leads to inelastic demand, especially with addictive products (e.g., cigarettes, alcohol) where consumers are less sensitive to price changes.
Price Range:
- At extreme prices (very high or very low), demand elasticity tends to decrease.
- High prices likely reduce quantity demanded significantly due to affordability issues.
- Low prices may lead to increased quantity demanded as consumers find products affordable.

Price elasticity is calculated by the ratio of percentage change in quantity demanded to percentage change in price.
Different methods exist for measuring elasticity, emphasizing the relationship between demand sensitivity and pricing.