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Micro Economics (Essay Sample)

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MICRO ECONOMICS
Name:
Tutor’s Name:
(13 October 2010)
Micro Economics
Price elasticity is calculated when the proportionate change in demand divided by proportionate change in price (Quickmba, 2010).
I.e. Change in quantity of paint demanded divided by the proportionate change in price
= 35 gallons – 25 gallons \$3.50 – \$3.00
= 10
0.5
= 20
1
The product is referred to as price elastic when the proportionate adjustment in quantity demanded is larger than the proportionate adjustment in price. On the other hand the product is referred to as price inelastic when the proportionate adjustment in quantity demanded is a lesser amount of than the proportionate adjustment in price. The product is referred to as unitary elastic when the when the proportionate adjustment in quantity demanded is equal to the proportionate adjustment in price (Quickmba, 2010).
For the paint the price elasticity is 20 and thus interpreted as elastic.
Price elasticity is the measure that explains how the change of price of a product or service will affect the quantity of the product or service demanded. In the above example the price elasticity of demand is so large i.e. 20 this means that a slight change in price has a huge impact on the quantity demand of the product. This deduction assumes that all other factors are held constant (Ceteris Paribus) (Chrystal, & Lipsey, 1997). This assumption makes all other factors that affect supply and demand constant in view of the fact that one cannot describe them all.
There are several factors that can influence price elasticity they include; luxury value, presences and availability of substitutes, time, the budgets that many individuals have for the product or service, and price change expectations by the consumer (Dolan, & Lindsey, 1991). In this case the price elasticity is very high and this can be interpreted tha...
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