Elasticity of Demand Assignment Example | Topics and Well Written Essays - 750 words

Elasticity of Demand - Assignment ExampleWhen the price resilientity of take for a good is inelastic (Ed 1), the percent change in quantity bespeaked is smaller than that in price. So, when the price is raised, the total revenue of producers rises, and vice versa. When the price elasticity of necessity for a good is elastic (Ed 1), the percentage change in quantity filled is greater than that in price. Hence, when the price is raised, the total revenue of producers falls, and vice versa.As an example social club W produces a product called a widget. Company W sells their widgets for $10 and there is a demand of 10. The company had tried to raise the price to $20 previously, and the demand lowered to 5 they also changed the price to $5 and the demand rose to 25.. Company W uses the mathematical formula for measuring the price elasticity of demand in order to specify which of these options is best for the company. The formula is PEoD = (% Change in Quantity Demanded)/(% Chang e in Price). (Moffatt) In order to determine the elasticity of demand, Company W must first determine the percentage change in demand and price. The formulas for determining the percentage change areIn order to determine the elasticity of demand, the values are inserted into the equation first for the price at $5 5-10/5 which gives a percentage of change in the price of -.0025%. The values for demand are entered 25-10/10 which gives a percentage of change in demand of .025%. These values are inserted into the formula for the elasticity of demand (0.025%)(-0.0025%) and a resulting price elasticity of demand coefficient of -0.0000625 is reached. According to Mike Moffat, we always ignore the negative sign when analyzing price elasticity, so PEoD is always positive.