What is the price elasticity of demand?
The price elasticity of demand concerns the way prices change in relation to demand or how demand will change in relation to prices. The elasticity of the price can also refer to the amount of money every single consumer is willing to pay for something. People with lower income tend to have lower price elasticity because they have less money to spend. It is assumed that a higher income person has a higher price elasticity, as he can afford to spend more. In both cases, the ability to negotiate the payment is to negotiate its own value of what is sold. If the item sold is high demand, even a low price consumer is usually willing to pay higher prices.
Elasticity means stretching and flexibility. Based on each item, flexibility or price elasticity of demand will change. The change in the nature of the price and demand is influenced by a number of factors.
In general, goods or services offered at a lower price lead to demand for greater quantity. If you can get socks inSale, you can buy several pairs or several packages, instead of just a few. This means that although the seller offers socks at a lower price, it usually ends in earning more money, as the demand for the product has increased. However, if the price is too low, the retailer may lose money by selling too many pairs of socks with a reduced rate.
The price elasticity of demand evaluates how price change affects demand. In certain circumstances, demand remains inflexible, despite higher prices. This applies to a number of medicines that are available to treat certain conditions where there is no replacement. The demand remains constant despite high prices.
This also applies to fuel consumption, where there are few substitutes. In 2006, when gasoline prices increased sharply, the demand for gasoline was only slightly affected. Some people were able to use increasing for their cars or for buying cars thatThere were hybrids, but they were shortages. Since there are few alternatives, people continued to buy gasoline and the demand was therefore considered inflexible. The price did not significantly change demand. Other tools such as water are often very inflexible because they have no replacement to which the consumer can contact.
The price elasticity of demand also explains that the price becomes more flexible when higher prices can turn away most consumers who can choose something else that is cheaper. If the good or service has numerous substitutes, prices are more flexible and will change with demand. In fact, the availability of substitution is often a better predictor of price elasticity than demand. The amount of competition, many companies offering the same items, can also affect the price elasticity of demand. Competition on the market usually maintains prices lower and flexible. General equivalents of certain items have a demand for brand items, reducing their price.
In economics, complex formulas show how the price elasticity of demand can be either profitable or harmful to sellers. These formulas describe how good or poor price elasticity of demand functions. Among the examples of good (for sellers) price elasticity of demand is Neelastic prices . In this example, a small decline in demand is made up of higher prices. Elasticity of unit price , which increases demand, can also be profitable for the company. On the other hand, there is a poor price elasticity when demand with a lot of increase in, but does not create a discounted price, causing a decline in society profits.
and Perfectly elastic price is equally harmful. Increased price in good eliminates demand. The most profitable award is when the demand is perfectly unelastic , as with the above medicines and tools. DEPORTY PRICE, demand does not reduce, resulting in the highest profits for the company.