Economics and Global Business Applications Essay

Elasticity of command is a measure of responsiveness to a footing counter heighten of a good or go. When motive is bouncy, the constituent of a toll wobble of a product leave behind run in a larger percentage of quantity needed (McConnell, p 77). It essentially agency reducing the price of a good service go away result in a greater quantity beseeched and an increase in revenue for the seller. When demand is inelastic, a change in price will result in a reduction of quantity demanded, which will accordingly lead to a revenue diminish (McConnell, p 77). To demonstrate elastic and inelastic demand results,Company A sells 100 pens at $1.00 a piece each day, making their revenue $100.00. Company A indeed decides to sell their pens at $.50, which results in a summarise of 250 pens being sold. The total revenue from the price recede is $125, resulting in an additional $25.00 therefore the demand in this scenario is elastic. If selling the pens at the decreased price of $.50 would result in more pens being sold, but less total revenue, the demand is give tongue to to inelastic. According to McConnell, when demand in building block elastic, the percentage change in price and the resulting percentage changes in demand atomic number 18 the same. The change in price will not increase or decrease revenue. dawn price shot measures the response of demand to a change in price of another stand-in or complimentary good (McConnell, p. 87). backlog goods atomic number 18 goods that can be leveragingd in place of another good. Examples of supercede goods are sal soda ( get Coke vs. Pepsi), computers, and potato chips. A positive coer up elasticity of demand means the increase of price in peerless good, for display case Coca-Cola, will increase the demand of a substitute good, for example Pepsi.As the price for Coke increases, consumers are more liable(predicate) to purchase Pepsi at a lower price, thereby increasing its demand. Complementary good s are items that are typically purchased in conjunction within ace another. Examples are ringed binders and notebook paper, pencils and erasers, and potato chips and dip. A negative cross elasticity of demand in complementary goods means that the increase in price of one good, an example being potato chips, will decrease the demand for the complementary product that goes with it, the dip.Income elasticity measures the responsiveness of consumers to changes in their incomes (McConnell, p 88). get hold of for normal goods tends to increase as consumers incomes increase and conversely, demand for inferior goods tends to decrease as consumers income increases.Demand is elastic where there is a large availability of substitutes. The reason for this as the price of a good increases, if there is a large measuring rod of substitutes for this particular good, the consumer will choose the substitute. As discussed earlier, soda is an excellent example of this elasticity. Airline tickets ar e another example. As one airline raises its cost of a ticket or to even comport for a bag to be checked, a consumer will more likely choose a cheaper ticket or an airline that doesnt flush for baggage over the original. If there is no (or a very hold in) measuring stick of substitutes for a good, elasticity is utter to be negative. A price change in medication will not likely change the demeanor of a consumer relative to demand since there isnt a substitute to taking the medication. Household utilities are another example of a limited amount of substitutes.In discussing the proportion if ones income devoted to a good concept, the household budget comes into play. In a given month, households consecrate for many different good and services. A change in price may or may not walk out the households demand for those goods and services. Often, it is conditional on how much of the household budget is devoted to that good or service. Mobile phone service is an excellent example o f a service that will approximately likely have a large amount of a household budget dedicated to it. A change in price in the cell phone service will most likely result in that family making a closing to change to a cheaper service, since that will have a large impact on their budget. On the other hand, that same household may purchase fairylike bulbs each month. The amount of money dedicated to the purchase of light bulbs is so small, that a price increase will not likely affect the budget, therefore the family will not likely make a decision to change to a cheaper bulb.The concept of time when discussing demand is important. When a consumer has a large amount of time to decide on the purchase of a good or service, the elasticity is positive. Conversely, if there is little time, the elasticity is said to be negative. According to McConnell, and excellent example of this is gasoline for automobiles. Gasoline prices change daily and more often than not, prices rise. A family, who owns a car and is pendent on that car for work, etc, will not likely stop buying gas in the sort-term, because it is crucial to their everyday living. However, that family over a dour period of time may decide to find alternate means of travel, decreasing their demand for gas.Using the graphs for elasticity of demand and total revenue, areas of elasticity, inelasticity and unit elasticity have been identified. Demand is elastic between the prices of $80.00 and $50.00, meaning the demand increases as the price decreases, resulting in an increase of total revenue. Between the prices of $50.00 and $40.00, the demand in unit elastic, meaning the percentage of drop in price resulted in the same percentage of increase in demand. Revenue remained same(predicate) in this price range. Between the prices of $40.00 and $0, the demand is inelastic, meaning the price drop has resulted in an increase in demand, but not enough to over come the decrease. Total revenue has been negatively impact ed.