Elasticity of Demand

Elasticity of Demand

Elasticity of Demand.

Elasticity of demand, also referred to as the price elasticity is the measure that determines the relationship between the change in the amount of quantity demanded as a result of the price change price of particular good or service.

This measure is the change percentage of the demand of good or service in response the change in the. The sign for the elasticity of demand is always a negative sign, however, during the calculation the sign is always disregarded to reduce the complexity of the concept of the elasticity of demand.

Arguably, Giffen good have a positive sign of the elasticity of demand. Due to the indirect nature of the price with respect to the price elasticity of demand and services is always negative for normal goods and services.

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while in complement an increase in price of a good lead to a decrease in the demand of another good.When the demand for good change is, equal that of price it is considered the elasticity of demand is considered as a unit and has no effect on the level of revenue.

When the change percentage of the quantity is, less than the price the elasticity of demand is known as relative inelasticity. Increase in the price of a good lead to increase in the total revenue.

Therefore, if the demand is elastic, increase in price decreases the total revenue. While, in inelastic demand, increase in price increases the total revenue. (McEachern, 2012, p. 78).

Reference

Boyes, W. J., & Melvin, M. (2011). Microeconomics. Australia: South-Western Cengage   Learning.

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