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Assignment Of Microeconomics - Price Elasticity

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Added on  2020-02-03

Assignment Of Microeconomics - Price Elasticity

   Added on 2020-02-03

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ECONOMICS
Assignment Of Microeconomics - Price Elasticity_1
Table of ContentsINTRODUCTION.....................................................................................................................................3MAIN BODY.............................................................................................................................................3TASK B......................................................................................................................................................3Importance of price elasticity of demand for business......................................................................3Selection of product or service..........................................................................................................4Determining the price elasticity of demand for iPhone products......................................................5Factors determining the Price elasticity of demand..........................................................................6Using diagrams to demonstrate factors affecting price elasticity of demand....................................7CONCLUSION..........................................................................................................................................9REFRENCES...........................................................................................................................................10
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INTRODUCTIONMicroeconomics refers to study of individuals, business and firm's behaviour on the basisof apportionment of resources which are limited in nature. It also deals on choices made by the persons, what component have influenced their choices and how their choice have affected the price of the product, its supply and demand. The Marginal utility theory states the satisfaction gained by the customer by consuming an surplus quantity of a good.MAIN BODYTASK BImportance of price elasticity of demand for businessPrice elasticity of demand refers to change of customers demand due to change of priceof product. When the product demand is elastic then the change in the price of good will effectthe products demand but whereas the demand of product is inelastic then the change of the pricewill not have any effect on product's demand so price elasticity is an important component fordetermining the demand of business product.As when the price of product increases, the demand of product decreases alternativelywhen the price of the product decreases, the demand of the product increases. So the changes of
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price and demand of product moves in different directions (Tellis, 1988). So by estimating priceelasticity of demand we can easily know how business will react on change in price of productwill effect change in demand.If price elasticity of demand is equal to zero (0) then it determines demand is perfectlyinelastic and the change in price of product will not have any effect on demand ofproduct.If price elasticity of demand is between zero and one (0 and 1) then it states that demandfor product is inelastic and change in price of product will have significantly lower effecton demand of product.In case price elasticity of demand is equal to one (1) then the demand of product is unitelastic which determines that the change in price of product will have same effect on thedemand of productIf price elasticity of demand is less than one (>1) then product demand is elastic whichstates that any change in price of product will have higher effect on the demand ofproduct as compared to price. As referred above that the price elasticity of demand affects the ability of business whetherhe should increase the price of the product or not. As there are number of factors which effectselasticity of product for business. So business should refer to substitutes goods price anddemand, extra cost for changing the product, whether your product is a luxurious item or anecessity. Selection of product or service Selecting iPhone as a product for price elasticity of demand. As iPhone product demandis inelastic which refers that the customers are ready to pay any amount for the productirrespective of change in price of the product. So the manufacturer of iPhone can raise the priceof the demand of the product without thinking much about the demand of the product. Asconsumers thinks that the producers of Apple provides value of money for their products as wellas after sales service adds benefit to the customers demand.
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