Wgu Egt1 Task 2

309.1.2.08.09 NEW

According to Robert Everson,(1987), Elasticity of demand is the degree to which demand for a good or services varies with its price. Normally, sale increase and decrease with the drop in prices. As a general rule non-essentials show elasticity of demand whereas most necessities food, medicine, show inelasticity of demand significantly more or less with change in price. Elastic demand means that demand for a product is sensitive to price change. Meaning that consumers buy more products or services in response to a price change. Inelastic demand means that demand for a product is not sensitive to price change. Meaning demand for a product does not increase or decrease correspondingly with a fall or rise in its price.Unit elasticity is when an increase in price causes the same percent decrease in quantity demanded, and total revenue (price times quantity) remains unchanged.

The coefficient of elasticity is used to quantify the concept of elasticity including price elasticity, cross price elasticity, and income elasticity of demand. The price elasticity coefficient tells us the percentage by which quantity demanded of a good will change due to the percentage of change in the price. Price elasticity (Ed) = [pic] . Higher coefficient of price elasticity means that demand will respond by more proportion to a change in price. If elasticity is greater than 1, the demand will be called elastic. And a one percent change in price would cause demand to change by more than one percent. Lower coefficient of price elasticity means that demand will respond by less proportion to a change in price. If elasticity is lesser than 1, the demand will be called inelastic. And a one percent change in price would cause demand to change by less than one percent. Unit coefficient means the price change percentage is the same as the percentage of quantity. If elasticity is 1, a one percent change in price would cause quantity to change 1 percent.

B. Cross-Price...