Critical Evaluation of Price Elasticity of Demand

This report provides a critical evaluation of the concept of price elasticity of demand based on three different articles. It discusses the impact of price changes on the quantity demanded and its relevance in market decisions. The articles analyze the price elasticity of demand for gasoline, Hamilton tickets, and crude oil.

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Contents
Introduction..............................................................................................................................2
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Analysis.....................................................................................................................................2
Conclusion.................................................................................................................................9
References...............................................................................................................................10
Introduction
This report is intended to provide a critical evaluation on the concept of the price elasticity of
demand based on the three different articles published in different journals during the period
between 2017 to 2019. Further it is written to assist its readers to gain an in depth
understanding on concept of demand and supply analysis to make a range of market related
decisions, to make decisions that incorporate the relevant benefits and cost analysis and
finally to explain and defend why it is important to understand the structure of the market in
which a firm operates. A brief explanation of the articles along with the relevant sources has
been provided hereunder.
Analysis
Article one
Sources: Thought co., by Mike Moffatt, dated: September 03, 2018
The first article was published by the Thought Co as written by Mike Mofatt, dated 3rd
September,2018 that was about the price elasticity of demand of Gasoline, primarily focussed
on the fact that whether imposition of tax shall cause a reduction in the consumption of Gas
(Moffatt, 2018).
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In this article the major matter that is considered debatable was the price elasticity of demand
of the Gasoline. It further states that price elasticity of demand for the gasoline seems to be
hypothetical means not certain that how the rise in the price of gas shall affect the quantity
demanded for the same or simply how shall it affect the same (YUAN, 2018).
To ascertain this factor two meta-analyses on the price elasticity of gasoline have been
studied.
The first meta-analysis was published in the Energy Journal, written by Molly Espey that
talked about the variations noticed in the elasticity of demand of gasoline in United States.
During this study an examination of 101 studies were examined and it was found by Espey
that during the short-term period as assumed to be one year or less, the price elasticity of
demand for gasoline was found to be -.026, that simply meant that a 10% hike in price of
gasoline brought down its quantity demanded by 2.6%.
But when the same was measured for the long-term period that was assumed to be longer
than one year then it came to .58, which meant that a 10% hike in the price of gasoline
brought down its quantity demanded by 5.8%.
The second meta-analysis was the contribution of the work done jointly by Joyce Digraphia
Goodwin and Mark Hanley with the title of Review of income and price elasticities of
demand in the road traffic. Through this review they summarised the findings on the price
elasticity of gasoline.
It established the link between two factors, i.e., the price of the fuel a the second the volume
of traffic. The major summaries were as follows.
A 10% hike in the price of the fuel shall bring down the traffic by 1% in the short-term period
of one year or less and the same shall be 3% in the long term for a period of five years.
When talked about the volume of fuel consumption it shall come down around 2.5% in the
short run and more than 6% in the long run (Williams & Adams, 2013).
Again, the major reason given for the more reduction in the fuel consumption than the traffic
was attributed as the more efficient use of fuel because of its price increase.
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Second Article
Sources: Conliffe, by Elaine Schwartz, dated June 13,2017 (Prices taken From NY Daily
News)
In the article published in the Econlife, dated June 2013 that elaborated the story of elasticity
on the buying of Hamilton Tickets (Schwartz, 2017).
In this article the buyers of tickets of the Hamilton were categorised under four different
segments and the price strategy adopted was shifted from supply side monopoly pricing to
demand side monopoly pricing (Wendt, 2018).
The lucky buyers were those who were found successful then they were to obtain one of the
46 first and second row $10 tickets.
The second category of buyers were those persons of eminent repute like Obama , Trump etc
who can have their tickets directly from the show’s PR person Sam Rudy (Webster, 2017).
The third category was of the rich group who could spend more than rent on two tickets. In
their case it was noticed that though the equilibrium price of the ticket went beyond the
$2000, but the brokers used to make the sale to this group with the supply and demand
fuelled mark up.
The fourth category of buyers had to see the time outs and only one day tickets were made
available or left for them.
This study showed that when an award-winning show is going on to the theatres then in that
case the theatre gets the monopoly status and can charge different prices from the different
groups. Here it is not being checked that who is ready to pay how much.
Finally, the study concluded that those categories of customers coming as to represent the
lucky or patient class their response to the price hike of tickets were found elastic, whereas
the rest of the two categories it was quite inelastic. The former two categories preferred to
buy more tickets only when the price came down.
Third Article
Sources: http://pearsonblog.campaignserver.co.uk/tag/price-elasticity-of-demand
5 January 2019
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In this news the ups and downs in the price of oil was examined and it was told that though
the current oil price is around $85 per barrel, but at the same time it is being predicted to
reach to $100 per barrel (Pearson, 2019). In this blog both the demand and the supply side
causes of the oil market was looked upon. The major reason given for the demand side is the
constant increase in the growth rate of the world economy (Vieira, O’Dwyer, & Schneider,
2017).
But the sudden move in the economy brought down the price from $85 per barrel to $50 per
barrel due to the global growth falling rate and due to the future prediction of the recessionary
state of economy.
Due to this state of economy, it is well seen that the oil companies are bringing down the
stock of the oil and buying less amount of oil.
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Then the question is being asked whether there shall be the continuous downfall of the oil
price that would be seen by the world (Truong, Partington, & Peat, 2008).
In this regard most of the predictions are showing a much more positive response and are
hopeful that the price shall go up as the gloomy news of global economic growth.
Again, no matter whatever happens to the oil production and the global economic growth, but
it shall continually reflect the demand as well as the supply side. At the same time, it
recognized the fact that it is difficult to ascertain the quantity of demand and supply during
this period.
Magnitudes of these estimates in relation to the standard economic determinants of the
price elasticity of demand.
The first article tried to demonstrate the effect of price rise of gasoline through the help of the
two meta-analysis conducted because of which the short term and the long-term effect of rice
hike was noticed. The first meta-analysis only talked about the quantity of the gasoline to be
denuded in response to the changes in the price of Gasoline, but the second one also talked
about the effect of this price hike on the road traffic (Stacey, 2018). Hence based on both
analyses the necessary arrangements and steps to be taken in the manufacture of the vehicles
along with the gasoline can be well predicted and it seemed highly helpful for the future
guidance too.
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In the second article the effect of the price hike of the tickets of renowned show organised by
the theatre has been analysed. That is quite helpful for this entertainment industry to identify
its real customer group. It simply categorised the various group of customers and their
responses towards the price hike. Because of this study the price to be charged by the theatre
from different groups along with the proper identification of the target market could become
possible.
The third article basically discusses about the implication of the economic cycle on the
determination of the price of the Oil globally. It talks about the fact that if the economy is
showing the down turn status then due to the lower growth rate the price of the crude oil can
come down and the vice versa can only be expected with the further introduction of economic
reforms (Bouret, 2017).
Hence all the above three articles were found quite helpful in understanding the significant
impact of the price factor on the quantity demanded of the product or services. these are also
helpful in the determination of the appropriate prices of the product or service.
It further provides necessary assistance as to the fact that for a single commodity there may
be different prices to be charged from the different group of customers. Again, the time too
playa significant role in the price determination process. This concept is also helpful in
identifying the defects associated with the price mechanism of the product or service.
Conclusion
As it is well known fact that the concept of price elasticity is an important measurement to
measure the response of the quantity demanded of a product or a service in relation to the
changes in the price of that product or service. Hence this basic concept has been well
elaborated in all the above three articles with the help of the live examples as could be
prevalent from the practices done in the industrial world (Boghossian, 2017).
All the above articles have explained it in a quite detailed manner and set the relevant
guidelines in relation to the use of this economic tool.
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Generally, it is being seen that in real world often it is found difficult to provide an example
that completely matches with the concept provided in a theoretical way using literature. But it
is not seen in each of the above cases of the articles as explained above.
These articles help to demonstrate the ability of the writer to explain the concept of the
demand and supply along with their real-life use in the industry.
It assists in developing various price models based on the quantity demanded of a product or
service (Abdullah & Said, 2017).
All the articles chosen to represent the workings done and published in the renowned
publications to increase the amount of trust to be placed on the conclusions drawn from this
study. Hence there is no doubt here that the findings in the study are not the biased or based
on some general perception rather than they are lying on the strong basis of real world
examples.
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References
Abdullah, W., & Said, R. (2017). Religious, Educational Background and Corporate Crime Tolerance
by Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, 3(1), 129-149.
Boghossian, P. (2017). The Socratic method, defeasibility, and doxastic responsibility. Educational
Philosophy and Theory, 50(3), 244-253.
Bouret, I. (2017). Benefits of higher education in mid-life: A life course agency perspective. Journal of
Adult and Continuing Education, 23(1), 15-31.
Moffatt, M. (2018, September 3). The Price Elasticity of Demand for Gasoline. ThoughtCo., pp. 1-2.
Pearson, b. (2019, January 5). Tag: price elasticity of demand. THE SLOMAN ECONOMICS NEWS SITE,
pp. 1-1.
Schwartz, E. (2017, June 13). An Elasticity Story: Stretching to Buy Hamilton Tickets. Econlife, pp. 1-1.
Stacey, T. (2018). Myth and Solidarity in the Modern World: Beyond Religious and Political Division.
USA: Routledge.
Truong, G., Partington, G., & Peat, M. (2008). Cost-of-Capital Estimation and Capital-Budgeting
Practice in Australia. Australian Journal of Management, 33(1), 95-121.
Vieira, R., O’Dwyer, B., & Schneider, R. (2017). Aligning Strategy and Performance Management
Systems. SAGE Journals, 30(1), 23-48.
Webster, T. (2017). Successful Ethical Decision-Making Practices from the Professional Accountants'
Perspective. ProQuest Dissertations Publishing, 3(1), 142-156.
Wendt, K. (2018). Positive Impact Investing: A Sustainable Bridge between Strategy, Innovation,
Change and Learning (first ed.). Switzerland: Springer.
Williams, S., & Adams, C. (2013). Moral accounting? Employee disclosures from a stakeholder
accountability perspective. Accounting, Auditing & Accountability Journal, 26(3), 449-495.
YUAN, T. (2018). The Prospect for RMB Becoming One of the Two Center Currencies of the Dual-
Center Global Financial System. The Dual-Center Global Financial System(1), 83-91.
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