Экономические науки/14. Экономическая теория

Kapinus O., Usachev V.A.

Donetsk National University of Economy and Trade named after

M.l Tugan-Baranovsky, Donetsk

PRICE ELASTICITY OF DEMAND

In the study of markets, there is a need to link changes in price and volume of demand in one indicator. Use for this purpose the absolute values is not acceptable, since the prices are measured in monetary units (Euro), and the volume of demand - in terms of volume (pieces, kilograms, tons, etc.). Therefore, we can talk only about the relative changes in prices and quantities do not depend on the units of measurement. This indicator is the flexibility that characterizes the response measure of the relative change of one variable on the relative change in another variable.

Calculating price elasticity of demand.

One of the most important tasks of any business - the link between changes in prices for the products and income. The belief that the more income, the higher the price, the market economy sooner or later leads to bankruptcy. The total income given by the formula: R = P * Q,

where F - the unit price, and Q - quantity. If the firm raises the price per unit of output, it reduces the volume of sales (demand curve - decreasing function). It is clear that there are important, not absolute changes in price and quantity adjustments, and the relative (percentage).

Demand elasticity of price is defined as the ratio

E_D = - , Or E_D= -

In order to use this formula, we feel the need to have a demand curve that relates the functional dependence of the P and Q.

Price elasticity of demand shows the percentage change quantity demanded at a price change of 1%.

On the price elasticity of demand following factors:

· The presence of competitors' products or product substitutes (more than them, the greater the opportunity to replace the appreciated product, i.e. the higher the elasticity);

· Behind the buyer change the price level;

· Conservatism in the tastes of consumers;

· The time factor (the more the consumer time to choose a product and reflection - the higher elasticity);

· The share of consumer goods in income (the higher the share price in the consumer's income, the higher elasticity).

Demand is elastic if a price change on 1% of the value of demand will change by more than 1%.

With rise in price of skates at 15% (P led.) Quantity demanded will fall by 20% (Q decr.).

Demand is inelastic if a price change of goods to the value of 1% of the demand for a change of less than 1%.

If all the varieties of apples will rise in price by 45% (P led.) And the magnitude of the demand for them is reduced by 15% (Q decr.) Demand for apples is inelastic to price.

Demand is elastic: If P increases, Q decreases to a greater extent than the price increases.

If P decr., Q increases to a greater extent than decreases the price.

Several distinct types of price elasticities of demand, depending on the size of the coefficient of elasticity.

E> 1 - elastic demand (for luxury goods);

E <1 - inelastic demand (for necessities);

E = 1 - with a single demand elasticity (depending on individual choice);

E = 0 - perfectly inelastic demand (salt, medicines);

E - perfectly elastic demand (in a perfect market).

Factors affecting the elasticity:

Ø Availability of substitutes (substitutes) for this type of product. As you recall, the goods-substitutes - these are products that can be substituted in the consumption of this product. This means that more than two substitute goods, the elasticity of demand for this product.

Ø The share of goods in the budget consumer. Specific gravity - a relative value, ie the size of consumer spending on the goods in relation to the entire value of its budget (ie funds that can be spent, for example, wages in the month). As a rule, the higher the proportion of goods in the budget, the higher the price elasticity of demand.

Ø The amount of income. The higher the income the consumer - the more you can purchase products. Accordingly, changing the size of demand and its elasticity.

Ø The quality of the goods. Goods can be classified in terms of their necessity to the consumer. If the goods in question - a luxury item, the demand for it will most likely elastic. And if the subject required (eg bread), it is likely inelastic.

Ø For example, in the early 1990s in Russia, where there was a phenomenon of paradox Giffen, the demand for potatoes was elastic (low-quality goods), and for bakery products - has not changed, ie it was inelastic.

Ø A stock. The greater the value of stock, the greater the elasticity of demand.

Ø Customer expectations. Depending on the expectations of the consumer demand is not new it may be more or less elastic.