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Running head: CONCEPT APPLICATION ASSESSMENT 1

Concept Application Assessment


ECO/561
May 26, 2014
Igbodipe
CONCEPT APPLICATION ASSESSMENT 2
Concept Application Assessment
Price elasticity o de!and is !easured "y a #roduct $Pri!a "ottle %ater #rice increase&
increases' and the consu!ers res#onsi(eness or sensiti(ity to a #rice change) Many consu!ers
react to higher #rices e*a!#le at restaurant dishes' su#er!ar+ets oods #rice changes) ,hen
there a little #rice in an ite! the consu!ers !ay not react' ho%e(er %hen there are !odest #rice
changes %hich cause a large changes in the -uantity #urchased consu!ers are sensiti(e to the
need) According to econo!ists this is +no%n as the de!and or #roducts is relati(ely elastic or
si!#ly elastic $McConnell' .rue' / 0lynn 2112&)
Econo!ics also allo% "usinesses to use a #ercentage 3 o #rice elasticity de!and4 it can
"e used to or a"solute change %hich is the choice o units that can ar"itrarily aect a "usiness
i!#ression o the "uyer res#onsi(eness) E*a!#le' a cu# o ice crea! a the oot"all ga!e is
reduced ro! 56 to 57 and the consu!ers increase their #urchases ro! 81 to 111 "ags' it then
see!s that the consu!ers are -uite sensiti(e to the #rice changes and it is thereore that de!and
is elastic) Another %ay to use #ercentage is correctly co!#aring consu!er res#onsi(eness to
changes in the #rices o dierent #roducts) More %ays to (ie% the #rocess and calculation o a
#rice elasticity de!and can "e (ie%ed on the attached #o%er #oint $McConnell' .rue' / 0lynn
2112&)
Inelastic de!and is #erect %hen it is gra#hed as a line #arallel to the (ertical a*is4 and
#erectly elastic de!and is sho%n "y a line a"o(e and %hich is then #arallel to the hori9ontal
a*is) Chart :; on the Po%erPoint sho% the gra#h o a #erectly inelastic de!and along %ith chart
:< sho%s a elasticity gra#h)
CONCEPT APPLICATION ASSESSMENT 7
Ree!ence
McConnell, C" R", #"$", % &lynn, #" M" '200()" Economics: Principles, problems, and
policies '1*t+ ed")" ,oston, MA- Mc.!a/01ill I!/in"
2o/e!2oint attac+ed / ECO0561 5/26/2014"