Elasticity of Demand

What Is Elasticity of Demand? A very important price indicator is the elasticity of demand (EL) of a good or service. When a product or service is sold at a price that is generally expected by consumers, but when the price is increased, the quantity demanded is likely to fall. In other words, ELO (elasticity of demand) is a measure of the responsiveness of demand to a change in price. If a price increase causes the price to rise by 3 percent or more, the percentage reduction in demand caused by that price increase will be 3 percent or less. At the same time, the percentage increase in demand that can be expected from a price decrease is much less.

The Basic Economic Model

The Keynesian model, still widely used, places the price of the good, the supply of the good and the demand for the good on two main axes: the price axis represents the quantity demanded for the good, while the supply axis represents the quantity supplied for the good. In order to figure out how much the price changes for a given change in the quantity supplied, we need to apply the relationship in the Keynesian model. The equation to do this is known as the supply and demand equation. Looking at the figure above, the supply axis can be described as: Where: Q : The quantity supplied for the good Q = Q – Q-1. = Q-1. K : The quantity demanded for the good = Q-1. K-1. And the demand axis represents the quantities demanded: QD : The quantity demanded for the good QD = Q-D-1. = Q-D-1.

Types of Elasticity

Many types of demand can be analytically modeled in such a way that one can determine the amount of elasticity of demand and the associated price elasticity. The most common in economics is the demand elasticity (DE). The demand DE of an intermediate good is given by the following equation, where g is the quantity demanded: DE = αgL + βg + εg The expression α is the elasticity of demand. ε is the elasticity of substitution, i.e., the price elasticity of demand. εa is the elasticity of marginal cost. The formula is used for intangibles such as, say, brand names, or it can be used for goods such as cars where a great deal of price and content variation is generated by variations in the output costs for various suppliers and in the profit margins of the various types of customers.

The Importance of Price Elasticity of Demand

In any environment of changing supply and demand, elasticity of demand is the factor that will have the greatest influence on the increase or decrease in prices. A change in the elasticity of demand will cause a change in the direction of the supply curve. Thus, if the demand for a good increases, a rise in price will result. The same goes for the opposite, a fall in the demand. Firms are interested in price elasticity of demand because they might have two prices, an equilibrium price and a price at which they want to increase production. When the price of a good falls, the quantity supplied will fall, which means the equilibrium price will rise.

Conclusion

In this blog post we gave an overview of the idea of buying an open-source software package. We won't go into the details of open-source licensing and development as we know there are multiple relevant resources available to help people get started with a project.The concept of buying an open-source software package revolves around the fact that more companies are choosing open-source alternatives to their products and services. That way, they are able to avoid the financial problems that are usually caused by software licensing costs.As an example, operating system vendor Linux has almost as many different types of distributions as there are desktop computer vendors.And because of this, there are different distributions of Linux which have their own advantages and disadvantages.