PRICE ELASTICITY OF DEMAND

PRICE ELASTICITY OF DEMAND

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DEMAND

Demand is an economic concept that refers to the ability of customers to buy goods and services and the capacity to pay for a given commodity or product.

If all other considerations are kept continuously, an increase in products or services costs would reduce the quantity needed, and vice versa.

Continue adjustments arise due to improvements in certain aspects such as appetite, fashion, sales, purchasing facilities for hiring, the additional and substitution flow across the curve due to a rise in the quality of goods that the consumers are able to procure at various costs each time.

 

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PRICE ELASTICITY OF DEMAND

The degree to which the successful demand for something increases as the price rises is the elasticity of the price of the product. Overall, people want something less as something get cheaper.

% change in qty demanded /% change in price = price elasticity of demand

 

Consumer Surplus

Consumer Surplus

Consumer surplus is the indicator of the gain consumers gain from the purchase of products and services or the sale of commodities.

Economic surplus is the difference between the overall value of the good or service (indicated in the demand curve) and total amount currently payable by the buyer (that is, the commodity selling price) and the cost that the customer is prepared to pay.

The region below the demand curve and above the governing market price indicates the degree of consumer surplus as seen in the following diagram:

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CONSUMER SURPLUS AND PRICE ELASTICITY OF DEMAND

CONSUMER SURPLUS AND PRICE ELASTICITY OF DEMAND

If there is a sufficiently stable market for a product or service, the customer surplus is zero, since the amount consumers pay is equal to the amount that they are able to pay.

That is expected to happen in intensely competitive economies, where each particular corporation in its preferred market is required to be ‘price-taker’ and needs to sell at the prevailing market price wherever possible.

In comparison, the consumer’s surplus is infinite when demand is absolutely inelastic. Request for market shift is completely invariant.

The quantity demanded remains the same regardless of the size. Are there examples of goods with such low-price market elasticity?
The rest of the curves of production are downhill. If demand is inelastic, the future market surplus would be higher as certain consumers are willing to pay a high prices in order to retain the goods consumed. It is illustrated in the following diagram:

 

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Change in demand and consumer surplus

Some Microeconomic Benefits of a Weaker Currency.

If the demand curve increases and shifts in price and quantity of the equilibrium economy, the supply surplus rates will change.

It can be seen in the following diagrams. Within the left diagram, the equilibrium market prices fell from P1 to P2 and the volume traded decreased with an increase in demand from D 1 to D2.

Product surplus is larger since it is bought at low prices than before.

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