Demand, Supply, and Market Equilibrium (graded) Price Elasticity of Demand (grad

Question

Demand, Supply, and Market Equilibrium (graded) Price Elasticity of Demand (graded) Consider a product that you have purchased recently. If the price of this item increase. How would you adjust your purchases? Is the Demand for this product Price Elastic or Price inelastic? Justify your classification by applying the determinants of elasticity to this product. Suppose price of this product is on the rise and your are the store manager. What you be thrilled to be selling this product? How does and increase in price for this product affect your Total Revenue? Using specific examples. Relase the concepts of Cross Elasticity and Income Elasticity so this product.

Explanation / Answer

Recently, I have purchased two new dresses. If the price of these dresses increase, then I will buy only one dress instead of two. The demand for this good is price elastic. These dresses have many substitutes and as individuals apend a lot of money on these clothes, hence the price elasticity is high. Since my profit will increase as the price increases, I will be thrilled as a store manager of this product. Total revenue will increase as price increases. Cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. Income elasticity of demand measures the responsiveness of the quantity demanded for a good or service to a change in the income of the people demanding the good.

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