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Understanding Price Elasticity of Demand and Supply in Microeconomics

This assignment is 40 marks in total (40% of the course) and covers topics such as price elasticity of demand and supply, elastic and inelastic demand, and the difference between slope and elasticity of demand.

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Added on  2023-05-31

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This article explains the concepts of price elasticity of demand and supply, the difference between elastic and inelastic demand, the role of substitution in determining elasticity, and the impact of price changes on total revenue. It also discusses the relationship between demand elasticity and the slope of the demand curve.

Understanding Price Elasticity of Demand and Supply in Microeconomics

This assignment is 40 marks in total (40% of the course) and covers topics such as price elasticity of demand and supply, elastic and inelastic demand, and the difference between slope and elasticity of demand.

   Added on 2023-05-31

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Microeconomics
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Understanding Price Elasticity of Demand and Supply in Microeconomics_1
Microeconomics 1
Question 1
Price elasticity is the proportion between changes in the percentage of quantity commanded or
suppliers with corresponding alteration in price percentage.
Price elasticity of demand: - The price elasticity of demand is referred to as the
percentage alteration in the quantity of goods and services commanded divided by the
change in the fraction of the price (Norman, 2014).
(Source: Cowell, 2018)
Price elasticity of supply: - The price elasticity of supply is the fluctuation in the
percentage of the quantity delivered that is divided by the fluctuation in the percentage of
the price (Norman, 2014).
Understanding Price Elasticity of Demand and Supply in Microeconomics_2
Microeconomics 2
(Source: Cowell, 2018)
Difference between inelastic and elastic demand
Some of the points that reflect the difference are discussed below: -
Basis of
Differences
Elastic demand Inelastic demand
Meaning The slight change in price of goods or
product brings the substantial change in
the quantity which is required is known
as elastic demand (Norman, 2014).
The change in the price of a better
outcome brings no or minor change
in the quantity that has been
demanded by customers is known as
inelastic demand.
Demand curve The demand curve remains shallow. The demand curve remains Steep.
Elasticity
Quotient
Needs to be equal to or more than 1 Less than 1
Price and total
revenue
Move forward in the opposed direction Move forward in the identical
direction
Goods/ It majorly includes comfort and luxury This majorly includes the necessary
Understanding Price Elasticity of Demand and Supply in Microeconomics_3

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