# Price Elasticity

Essay by CerberusUniversity, Bachelor'sA+, January 2006

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Price elasticity of demand is a consumer's receptiveness to the change of a price in a good or service. In essence what this means is that a consumer has certain expectations in regards to goods or services he or she wishes to purchase. There are certain goods or services that a consumer will purchase regardless how much they are. This usually occurs when the item is a necessity and an alternative is not available. This is price elasticity. The opposite end of the spectrum is price inelasticity. If the item is not a necessity, per say it is a luxury item or the item can be replaced or substituted for a similar item the consumer will not buy it. The increase of goods and services that are not necessities deters consumers because the opportunity cost of buying the product will be too high. That is price inelasticity.

To find the elasticity of the supply and demand curves simply graph the following equation:

Elasticity = (% change in quantity/ % change in price)

If the elasticity is greater or equal to one, the curve is considered to be elastic.

If the number is less than one, the curve is said to be inelastic.

The consumer's attitude regarding a good or service also has a great deal to do with the quality of the good or service. When a consumer is pleased with the level of service or the quality of an item he or she is much more likely to pay more for it. Conversely the opposite holds true for inadequate goods or services. A consumer is more likely to do without or find a substitute if they are not happy with the good or service being provided.

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