Quiz 6: Demand and Elasticity
The elasticity of demand is measured in percentage because the percentage change in quantity demanded and price is considered while measuring the elasticity of demand. Percentage changes in the price and quantity demanded are taken in to the account rather than absolute changes. Units of measurement do not affect on the percentage measurement. Thus, the elasticity of demand is calculated in percentage considering that the percentage changes before and after in price and the quantity demanded are taken in to the account.
Income of the consumers, taste and preference, future anticipation of price, and demography are the variable other than the price and advertising which are likely to affect on the quantity demanded of products. An increase in the income of consumers leads to rise in the demand for products. Changes in the tastes and preference of consumers also affect on the demand for products. Present demand for the products is being affected by the future anticipation of price. If consumers anticipate that the price of product is likely to increase in the future, then the current demand for product increases in the market. Changes in the population lead to affect the demand for products. An increase in the population causes rise in the demand for products. Thus, the quantity demanded of a product is being affected by the various variables other than the price and advertising.
The elasticity of demand formula eliminates the minus sign because the percentage change in quantity demanded and the price is taken as an absolute value while measuring the elasticity. A change in the quantity demanded with reference to a change in the price is considered while measuring the elasticity of demand. Price elasticity of demand gives an idea about percentage decline in quantity demanded due to a percentage increase in price and a percentage rise in quantity demanded due to a percentage fall in price. The following is a formula which is used for measuring the price elasticity of demand. The above formula indicates that the minus signs are not taken in to the account while measuring the elasticity. Thus, considering the elasticity of demand formula normally ignores negative signs considering that the absolute changes are taken in to the account.