How is the elasticity of demand at a price

One of the basic concepts of the economy is demand,depends on very many factors, which include the level of prices for goods, consumer incomes, product quality, and customer tastes. But most of all, demand depends on prices and their level. The indicator, called "price elasticity of demand," records the changes that occur with demand, in accordance with a reduction or increase in prices by one percent.

The elasticity of demand is revealed in order toto make a price review. The enterprise, thus, finds the most successful course of its price policy, so that it brings greater economic benefit. The resulting data as a result allow you to get acquainted with the reaction of buyers, set the direction of production in order to correctly respond to changes occurring in the market and adjust the share occupied by it.

When calculating the elasticity of demand by pricethe coefficient of cross elasticity and straight line. To determine the latter, calculate the ratio of changes in the volume of demand to relative changes in commodity prices. This indicator allows you to set the percentage change in demand for changes in prices for goods by one percent. This coefficient has several meanings. So, if it approaches infinity, it means that along with a decrease in prices, buyers' demand for the product increases, but if prices rise, then consumers completely refuse to buy. If the coefficient is greater than one, then the demand grows at a rapid pace and outstrips the price increase. If the coefficient is less than one, the opposite situation is observed. If the direct elasticity of demand for a price is equal to one, then the growth of prices and demand occurs at the same pace. At this indicator, equal to zero, the demand is not affected by the price of the product.

When determining the cross-ratiothe elasticity of demand for price, the comparison is made of changes relating to the relative volume of demand for a particular commodity, when prices change by one percent to another. This indicator also has several meanings. So, if the coefficient is greater than zero, then the compared goods mutually replace each other. If the price for butter increases, then demand may increase, for example, vegetable fat. If the coefficient that makes up the cross elasticity of demand at a price is less than zero, then the compared goods are mutually complementary. For example, when prices for gasoline are rising, there is a drop in demand for cars. With a coefficient equal to zero, the goods do not depend on each other. That is, a change in the price of one does not affect the demand for another.

For an enterprise engaged in productionit is very important to identify the elasticity indicators. After all, the price policy of the goods producing company is usually formed from the costs of production, so the resulting price for the goods is designed not only to compensate them, but also to bring profit to the producer. Therefore, to study the elasticity of demand for price is so important that the company's pricing strategy is chosen correctly.

It is necessary to take into account the manufacturer thatthe elasticity of demand for the products it produces may not coincide with the elasticity of demand in the market. The first indicator will always be higher than the second, except when the producer of the goods is a monopolist. When calculating price elasticity, one should not discount such an important factor as competition. Therefore, in calculating the elasticity of demand, mathematical models are used, personal experience of the enterprise manager is taken into account.

You can identify the elasticity of demand for income. If consumers have increased income by one percent, then the demand for the same amount will increase. From this it follows that the elasticity is one.

The presented material allows to conclude that elastic demand is the dynamics of consumer interest in certain groups of goods in accordance with changes in the level of prices for them.