Discuss the relevant elasticity for two of the following scenarios in separate p

Question

Discuss the relevant elasticity for two of the following scenarios in separate posts. In your answer, comment on what determines that elasticity classification.

Explanation / Answer

Prince elasticity of demand: The price elasticity of demand measures the degree to which the unit sales of a product or service are affected by a change in price. e = dq/dp * p/q (q->quantity demanded, p->price) Classification of elasticity: Some ways of classification are followed, yet I prefer the below, which I feel is one of the most general. Demand for a product is said to be inelastic if a change in price has little effect on the number of units sold. Ex: The demand for designer perfumes sold by trained personnel at cosmetic counters in department stores is relatively inelastic. Lowering prices on these luxury goods has little effect on sales volume. Demand for a product is said to be elastic if a change in price has a substantial effect on the volume of units sold. Example: Consider gasoline. If a gas station raises its prices for gasoline, there will usually be a substantial drop in volume as customers seek lower prices elsewhere. In the question: a) dp is large, dq is small . SO e IS SMALL b) dp and dq are of same order. e

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