In marketing there is a concept of elasticity of demand. The elasticity of demand gives the chance to define how any given factor affects demand of buyers and its choice. It depends on many indicators among which there is a price of goods, existence of competitive goods, quality of a product, the income of the consumer, taste of the buyer, etc. The elasticity is measured in coefficients.
Instruction
1. More demand depends on goods cost level. The elasticity of demand at the price gives the chance to understand as far as demand of consumers for any given goods at increase or reduction of its cost by 1% changed. The elasticity of demand pays off as the percentage of change of size of demand to change of market value for any given goods.
2. Calculating coefficient of elasticity of demand, use two main methods. The first method – elasticity of demand on an arch. Such method is applied, as a rule, at measurement of elasticity between one and other point of a curve of demand.
3. For determination of elasticity of demand such method needs to be made the following. Calculate coefficient of elasticity of demand by means of a formula (see the Drawing) to a .gda for P1 and P2 the initial and new price respectively, and undertakes Q1 and Q2 – initial and new volume respectively. At all this it would be desirable to note that use of this formula does not give the chance precisely to calculate value of elasticity of demand but only approximate with a margin error. What will be such error more, especially AV arch will be convex on graphics.
4. The second method – dot elasticity. Such method is used when function of demand is set, and also initial level of the price and size of such demand are known. Calculate coefficient of elasticity of demand by the following formula (see the Drawing). Such formula shows relative change of volume of demand at the minimum change in price or any other parameter. First making formulas is a derivative of function of demand at the price, the second (P) - market price and third (Q (P)) - demand size at this price.