Economics of Managers Question Answer 2022

Running head: ECONOMICS OF MANAGERS
Economics for managers
Name of the Student
Name of the University
Author Note

ECONOMICS OF MANAGERS
Table of Contents
Answer to question a).................................................................................................................2
Answer to question b)................................................................................................................7
Answer to question c)...............................................................................................................11
References list:.........................................................................................................................15

ECONOMICS OF MANAGERS
Answer to question a)
The concept of price elasticity of demand is understood widely and the most common
measure of the sensitivity of the consumers to price is known as the price elasticity of
demand. Price elasticity measures the proportionate changes in the demand for any particular
product due to change in its price. Classification of elasticity can be done as elastic and
inelastic where elastic occurs when the elasticity is more than negative and inelastic when the
elasticity is close to zero or smaller. Goods or the products having fewer substitutes and are
required for every consumption tends to have lower elasticity compared to the goods that not
essential and have wide range of substitutes. Price elasticity of demand can be computed by
dividing the percentage change in quantity demanded due to percentage change in price
(Gouel & Laborde, 2018).
There are five different types of price elasticity that can be represented on the demand
curve. Such elasticity comprise perfectly elastic, perfectly in elastic, relatively elastic,
relatively inelastic and unitary elastic.

ECONOMICS OF MANAGERS
The upper portion of the demand curve represents relatively elastic demand as an
increase in price would cause demand to change by larger amount. On other hand, lower
portion of demand curve represents relatively inelastic demand as increase in price would not
change demand by significantly. Different types of price elasticity can be explained
individually (Moser 2016).
Perfectly elastic demand- Under this, a small change in price would cause an
indefinite change in the quantity demand. However, such scenario does not occur in reality.
The graph tends to be a line running parallel to quantity axis.
Relatively elastic demand- Any proportionate change in price causes
demands to increase by larger percentage than increase in price. The demand curve
representing the relatively elastic demand is flatter as shown in the diagram below.
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ECONOMICS OF MANAGERS
Unitary elastic- Any percentage change in price would cause the demand of product
to change by same proportion. This type of elasticity barely exist in reality.
Perfectly inelastic demand- Any change in price would not impact the quantity
demanded and irrespective of price level, demand will remain constant.
Relatively inelastic demand- Any proportionate change in price would cause the
demand to increase by lower percentage that increase in price. It can be represented by the
graph below:
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ECONOMICS OF MANAGERS
The pricing decisions of the business and firms is crucially influenced by the concept
of elasticity of demand. Elasticity concept is one of the important metrics for the managers
determining the product’s price. The objective of marketing manager is to shift the products
from being relatively elastic to relatively inelastic. In addition to setting the price of the
products by the firms, elasticity also plays an important role in deciding about the price that
should be paid to the factor of production (Falkner, 2016). The formulation of policies by the
government is also dependent upon the concept of price elasticity of demand. The goods with
inelastic demand would have higher amount of tax imposed on it compared to the relatively
elastic products. One of the influential role is played by price elasticity of demand in
determining the price for monopoly. This is so because monopolist tends to charge higher
price for their products as there do not exist competition in the market (Dittrich et al., 2016).
It is therefore utmost important for the monopolist to evaluate the elasticity of the products
when determining its price.
The actual estimates of the elasticity of the demand for products is identified by
reviewing some economic journals explaining the concept of elasticity. In one of the articles
titled” Long run demand for energy services: Income and price elasticity over hundred
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