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Phase 2 Discussion Board - Assignment Example

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According to Kalwani, Heikki and Yoshi (2010), elasticity of demand can be categorized as unitary, elastic or inelastic. Elastic demand is associated with significant changes in quantity demanded due to change in…
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Phase 2 Discussion Board
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Phase 2 Discussion Board

Therefore, the demand is inelastic, meaning that a change in price would not significantly affect the quantity demanded. When elasticity of demand is referred to as unitary, this means it equals one and as such, any change in price will have an equal impact on quantity demanded. Price elasticity of demand (PED) refers to change in quantity demanded due to percentage change in price. The value of price elasticity is similar at all points along the demand horizontal curve. The same case applies to price inelastic demand (PID) which is represented by a vertical line.
According to Gupta (2008), PED is defined as a measure of responsiveness of quantity demanded to changes in price. Demand is said to be elastic when PED is greater than one. Further, this indicates that consumers are very sensitive to changes in price. One percentage change in price will lead to a drop in quantity demanded by more than one percentage. Similarly, when PED is less than one, it is interpreted that consumers are insensitive to price changes and any increase in price will cause a decline in quantity demanded by less than one percentage. Ideally, the effect of price increase has a significant effect on Autoedge total revenue. As such, PED becomes paramount for the company as it seeks to maximize revenues. In this regard, if Autoedge finds its PED to be relatively inelastic, it may decide to raise prices since the auto parts would be sold at high prices without adversely affecting sales. Similarly, if Autoedge finds its PED to be inelastic, it may choose to lower prices in order to enable the business increase the number of units sold and hence revenue without necessarily losing customers.
It is worth noting that when demand is perfectly elastic as represented by a horizontal curve, any increase in price leads to zero units demanded. On the other hand, if the demand is found to be perfectly ... Read More
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