Economics Elasticity Essay -- Price Elasticity of Demand

Businesses know that they face demand curves, but rarely do they knowwhat these curves look like. Yet sometimes a business needs to slang agood idea of what part of a demand curve looks like if it is to makegood decisions. If Ricks Pizza raises its determines by ten percent, whatwill incur to its revenues? The answer depends on how consumers willrespond. Will they cut back purchases a little or a lot? This questionof how responsive consumers are to price changes involves the economicconcept of elasticity.Elasticity is a measure of responsiveness. Two words are importanthere. The word measure means that elasticity results are report as bites, or elasticity coefficients. The word responsiveness meansthat there is a stimulus-reaction involved. Some change or stimuluscauses people to react by changing their behavior, and elasticitymeasures the extent to which people react.The most common elasticity measurement is that of price elasticity ofdemand. It measures how much consumers respon d in their buyingdecisions to a change in price. The basic formula used to determineprice elasticity isIf price increases by 10%, and consumers respond by decreasingpurchases by 20%, the equation computes the elasticity coefficient as-2. The result is negative because an increase in price (a positivenumber) leads to a decrease in purchases (a negative number). Becausethe equity of demand says it will always be negative, many economistsignore the negative sign, as we will in the following discussion.An elasticity coefficient of 2 shows that consumers respond a greatdeal to a change in price. If, on the other hand, a 10% change inprice causes only a 5% change in sales, the elasticity coefficient... ...ticalsupply curve. For example, if on December 1 the price of orchard apple treesdoubles, there will be minimal effect on the number of applesavailable to the consumer. Producers lavnot make adjustments until anew growing season begins. In the short run, producers can use theirfacilit ies more or less intensively. In the apple example, they canvary the amounts of pesticides, and the amount of labor they use topick the apples. Finally, in the long run not only can producerschange their facilities, but they can leave the industry or newproducers may enter it. In our apple example, new orchards can beplanted or old ones destroyed. starting time ConsultedVitali Bourchtein The Principles of Economics Textbook An Analysis of Its Past, Present & Future May 2011 Web 15 May 2015.http//www.stern.nyu.edu/sites/default/files/assets/documents/con_042988.pdf