DEFINITION OF DEMAND ELASTICITY
Elasticity can be interpreted as the relative magnitude of the change of variables described, as a result of variables that explain the changes.
If the variable that explained dimisalkan Q (quantity) of an item, and the variables that describe the P (Price) price, then we can formulate that the elasticity is:
There are 2 kinds of elasticity in general are:
- Elasticity point (Point elasticity), which measures the elasticity at a particular point or the movement of several points.
- Arc Elasticity (Arc Elasticity), which measures the elasticity at several points simultaneously.
Is a measurement of quantity to show how much influence the price changes on the demand of goods.
There are 3 types of elasticity of demand is:
- Price elasticity of demand
- Income elasticity of demand
- Elasticity of Demand Cross
Determinant-determinant Demand Elasticity
Availability of the Nearby Substitution Goods
Goods with the nearest substitutes tend to have more elastic demand because consumers easier to replace the item with another. For example, butter and margarine is the stuff that easily replaced by another. Increases in the price just a little butter, margarine, if prices continue, will result in the amount of butter were sold off dratis. Conversely, because the egg is a meal without close substitutes, the demand for eggs is not seelastis demand for butter.
Needs versus luxury
Needs tend to have inelastic demand, otherwise the luxury to have elastic demand. When the cost of doctor visits increased, oreng will not dramatically change their frequency to the doctor, though perhaps not as frequently as before. Conversely when the cruise ships increases, the amount of demand for cruises will drop a lot. The reason is because most people see the doctor as a necessity, while cruise ship as a luxury. An item is a necessity or a luxury does not depend on the nature of things, but at the buyers choice. For a sailor who was not paid much attention to his health, cruise ships may be a necessity with inelastic demand, while the doctor is a luxury with elastic demand.
Elasticity of demand in all types of markets depends on how we describe the market boundaries. Narrowly defined markets tend to have more elastic demand than the defined area, because it's easier to find substitutes for the goods narrowly defined. For example, food, a broad category, which has inelastic demand because there are no substitutes for food. Ice cream, a narrower category, has a more elastic demand because it is easy to replace with other dessert. Vanilla ice cream, a very narrow category, has a very elastic demand for other flavor ice cream are substitutes almost perfectly for the vanilla.
Goods tend to have more elastic demand during a longer time. When gasoline prices rise, the amount of gasoline demand decline only slightly in the first few months. But after that, however, people will buy the cars more fuel efficient, using public transportation, and moved to work closer to where they live. In recent years, the amount of demand for gasoline will decrease dratis.
Calculating Elasticity of Demand
The economists calculate the elasticity of demand as the percentage change in quantity demanded divided by percentage change in variables that influence, which can dimisalkan with variable rates
Price elasticity of demand = percentage change in the amount of demand / price percentage change
For example, suppose that a 10 percent increase in price resulted in the amount of ice cream ice cream you buy will fall by 20 percent. We calculate the elasticity of your request as follows:
Price elasticity of demand = 20% / 10% = 2
Factors that affect elasticity:
- How much other stuff to replace the goods concerned.
- How much of that revenue will be spent to buy the goods in question.
- time analysis
- Many kinds of goods whether or not relevant.
Demand Elasticity measurement benefits:
- To the company, can be used as a basis for making a policy or sales strategy.
- To the government, with the knowledge of the nature of goods (export and import) can be arranged to support a policy.