309.1.2 Supply and Demand 1) Discuss elasticity of demand as it pertains to elastic, unit, and inelastic demand. a) Elasticity of demand are circumstance at which a good or service varies according to prices. These circumstances measures consumers reaction and how they respond to the changes in price by changing the quantity demanded. (PE-of-D = (% Change in Quantity Demanded/% Change in Price)) – When the price for a number of units decreases from positive units pre-dollars to negative units per-dollars, the quantity of units sold increases. i) With regard to elastic demand, the change in quantity demanded due to the price change would increase or be larger. ii) With regard to inelastic demand, the change
Address, in your discussion, specific examples of how the same percentage change in the price of both goods affects the percentage change in the quantity demanded for each of the two goods. ix) A customer goes into their usual health store to purchase vitamins. Noticing the price change, they decided to go with cheaper generic store brand which is a substitute for the name brand. It doesn't matter the difference between the two. They chose because of the cheaper price and the availability for the substitute increases its demand elasticity. 6) Contrast how a person would initially respond to a relatively large increase in the price of a product in the short run as opposed to how that same person might react to that same price increase over a longer time horizon (i.e., the long run), using the “Consumer’s Time Horizon” concept. e) Price elasticity of demand is how a change in price on the quantity of a demanded product is accepted in the market. One of these determinants is time horizon referring to an available period, time allows for the market to adjust with the changes in price. Consumer’s Time Horizon has two dimensions that affect a customer respond to time, which can be understudied using gasoline prices as an example to understand how customers respond to the change. x) When the price of gasoline increased, many consumers where restricted form making a short term