Economics Assignment: Price Elasticity of Demand and Trade Protectionism

Running head: ECONOMICS ASSIGNMENT
Economics assignment
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ECONOMICS ASSIGNMENT
Question 1
The price elasticity of demand is a measurement that is used in economics which
shows responsiveness or elasticity of the quantity demanded for the services and goods. The
price elasticity are negative in nature. The revenue is maximised when the price is set so that
the price elasticity of demand is one. The measure of elasticity is sometimes referred to the
own price elasticity of demand. Demand extends or contracts with the change in price.
Elasticity is the change or responsiveness of the demand to the change in price (Jones, 2017).
The demand for products can be both elastic and inelastic in nature. Demand will be elastic
in nature when there will be a small change in price with a change in the demand. The
inelastic demand means that any amount of fall in the price of the commodity would not
induce any kind of extension in the demand. However in some cases the conditions and more
or else unrealistic.
The factors which will affect the demand for goods are:
 Availability of the substitutes: one of the important factors which affect the elasticity
of demand is the availability of the substitutes. When the commodity will be having
close substitutes, the demand will be elastic in nature. On the other hand when the

ECONOMICS ASSIGNMENT
product does not have many close substitutes, the demand will be inelastic nature.
When the price of the product goes up in case of elastic demand, people will tend to
buy the close substitutes whereas when the product is inelastic nature, the rise in rice
will not affect the demand of the product.
 Proportion of the income of the consumer which is spent on the commodities: the
second factor which affects the elasticity of demand is by how much consumer budget
will be affecting the commodities. Greater the proportion of income spent on the
commodity, the higher will be the elasticity of demand. The demand for necessities
such as soap, matches, salt are inelastic in nature because the consumer spent only a
small portion of the income for buying these kinds of goods. Therefore it can be said
that when the household spend a huge part of their income in buying specific
products, the price elasticity of that particular good is tend to be highly elastic in
nature.
 Total number of the uses of the product: the greater is the amount of uses which a
commodity has, greater will be the price elasticity of demand. When a particular