By contrast, the price elasticity of demand tells you “how much” quantity demanded changes when price changes. It shows the responsiveness of a change in quantity demanded to a change in price. [text: E p. 114; MI p. 114] 2. Why do economists use percentages rather than absolute amounts in measuring the responsiveness of consumers to changes in price? There are two basic reasons.
Piyatida Choomchaiyo Business HL Ms. Brennan 12/02/11 Case Study – Bodyline a) Supply and demand is one of the most fundamental concepts of economics that is also very useful to pricing in business. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product that people are willing to buy at a certain price. Supply represents how much the market can offer (price). The correlation between price and how much good/service is supplied to the market is known as supply relationship.
Total revenue equals price time’s quantity. It reflects total receipts obtained from selling a certain output or quantity of goods. Total costs is different it’s equal to fixed costs and variable costs. Fixed costs include building and equipment costs, regulatory fees and salaried personnel and remain stable, especially in the short term, but may vary with a longer time horizon. As the time horizon increases, variable costs rely less on existing factors and restrictions and therefore will begin behaving differently which will in turn affect the cost of production (Wright, 2007).
We also discussed elastic and inelastic and I learned there are two kinds that affect pricing. First is "price elasticity of demand [which] is the percentage change in quantity demanded divided by the percentage change in price [and] price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price" (Colander, 2010, p. 154). Applying these to real world scenarios and applications aided in understanding the
1. What is meant by the term ‘economies of scale?’ The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods. 2. Explain why economies of scale are important to companies such as McDonald’s and GBK.
EGT1: Task 309.1.2.08, Performance Task Element A: Elasticity of Demand (Ed) measures how responsive demand is to a change in the price of a good or service resulting in either elastic, inelastic, or unit-elastic (Roberts, 2013). An item is elastic when a percentage change in the price has a substantial effect on the percentage change of the quantity purchased, this relationship will be one that is inverse in nature. Simply, this responsiveness to change shows that if there is an increase in price on a good or service the result will be a reduction in sales of that good or service. If there is a decrease in price of a good or service, the result would be an increase in sales of that good or service. Elasticity is measured using a
A primary use of the PPI is to deflate revenue streams in order to measure real growth in output. A primary use of the CPI is to adjust income and expenditure streams for changes in the cost of living. The different uses because definitional differences that can be categorized into two critical areas: the composition of the set of commodities and services they include and the types of prices collected for these
Supply and Demand Simulation Amanda Huenefeld ECO/365 Sadu Shetty January, 14, 2013 Introduction Supply and demand are the two influences that govern pricing in the larger picture of a viable economic market. The two factors are like two forces. Equally the conclusive levels of supply and demand, and the comparative levels of the two in contrast to one another, are significant. The standard of supply and demand is that if one or both varies, there will be a transient difference in the amount of product manufacturers are equipped to sell and the quantity that consumers are willing to buy. This difference will cause the market price to increase or decrease when necessary until the quantities are the same.
They then develop calculations to categorize these consumer patterns, and then use them as tools to provide insight into consumer reactions and possible future buying patterns. One of these tools is called the Price Elasticity of Demand. The Price Elasticity of Demand measures how consumer demand changes as a result of changes in price and it is represented as a coefficient. Elasticity is the main aspect of this coefficient and it represents how responsive or elastic consumers are to price fluctuations. This coefficient is calculated by dividing the change in demand by the original demand, and subsequently dividing that total by the change in price divided by the original price and the final
Study the demand elasticity for its products and discuss the availability of close substitutes for its products. How does that affect pricing decisions? Analyze the company’s profitability. Identify the economy or industry influences on its costs, operations, and profitability. Describe the competitive environment in which the firm operates, the distribution of market power, and the strategic behavior of the firm and its competitors.