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Economic And Management - Essay Example
This paper intends to define the concept of elasticity and the concept of price elasticity of demand. At first deals with explaining what Price Elasticity of demand (PED) is and what factors determines PED of a good. Then after giving this basic knowledge it relates the scenario with the concept of PED and total revenue.
Elasticity is an easy way of enumerating cause and effect correlations. It is described normally as a mathematical measure of the responsiveness of one economic variable (the dependant variable) following a change in another influencing variable (the independent variable), ceteris paribus.
Now we shall understand what Price Elasticity of demand (PED) is, it is the measure of responsiveness of demand for a good following an alteration in its own price. If demand is elastic, then a little transform in price will consequence in a comparatively big change in amount demanded. However, if price increases by too much and quantity demanded descends vaguely, then demand would be price inelastic. (Hubbard and O'Brien, 2008)
If co-efficient of PED = 0, it means that demand is perfectly inelastic. This means that any change in price whether increase or decrease does change the quantity demanded. Hence making its demand curve a vertical line in price(x axis) to quantity(y axis) space.
If co-efficient of PED is between 0 and 1, when we get values of PED between 0 and 1 than we say PED to be inelastic this means that percentage change in demand is lesser than percentage change in price. Producers know that the change in demand will be proportionately smaller than the percentage change in price. ...