Price Elasticity of Demand of Newspapers Essay

By August 23, 2017 Economics

The monetary value snap of demand measures the reactivity of measure demanded to a alteration in monetary value. In other words. it measures by how much the measure demanded will change if there is a alteration in monetary value. If a little lessening in the monetary value of the merchandise causes a immense addition in the measure demanded. so the merchandise is said to be monetary value elastic. When the demand is monetary value elastic. a autumn in monetary value will do a immense addition in the measure demanded so that entire gross rises. If the monetary value is increased. so entire gross would fall ( Hoag. 2006 ) .

On the other manus. if a little lessening in monetary value causes a really little addition in the measure demanded so the merchandise is said to be monetary value inelastic. When the demand is monetary value inelastic. a autumn in monetary value will do a minor addition in the measure demanded so that the entire gross revenues gross falls. If the monetary value is increased. so the entire gross rises ( Hoag. 2006 ) . For illustration. the monetary value of a newspaper is $ 5 and the measure demanded per hebdomad is 100 newspapers. Suppose we decrease its monetary value to $ 4. so the measure demanded additions to 110 newspapers per hebdomad.

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To cipher the monetary value snap of demand we’ll divide the per centum alteration in the measure demanded by the per centum alteration in monetary value. The per centum alteration in measure demanded would be 10 % and per centum alteration in monetary value will be 20 % ; hence. the monetary value snap demand will be 0. 5. As the snap is between 0-1 this shows that a newspaper is monetary value inelastic. If the snap had been greater than one. the merchandise would hold been monetary value rubber band. The factors that affect the monetary value snap of demand are: 1. The figure of replacements available

If a big figure of replacements are available so the demand is likely to be monetary value elastic. However. if fewer replacements are available so the merchandise is said to be monetary value inelastic ( Hoag. 2006 ) . 2. The clip period available The longer the consumers have clip to respond to a alteration in monetary value the more likely they are to happen inexpensive replacements. Therefore. monetary values tend to be monetary value elastic in the long-run ( Hoag. 2006 ) . 3. The proportion of the income spent on the merchandise Products like newspapers tend to monetary value inelastic because they constitute merely a little portion of a person’s income.

Merchandises that are monetary value elastic tend to represent a big portion of a person’s income. therefore a little alteration in monetary value causes immense alteration in measure ( Hoag. 2006 ) . 4. The grade to which the merchandise is a luxury or necessity. Necessities tend to be monetary value inelastic. while luxuries tend to be monetary value elastic ( Hoag. 2006 ) . Decision A simple decision we can acquire from our study is that when the demand is monetary value elastic. entire grosss increases with a lessening in monetary value. whereas when the demand is monetary value inelastic. entire gross additions with an addition in monetary value.

As we can see from the above computations that the demand for newspapers is monetary value inelastic. we can reason that diminishing the monetary value of newspapers is non a good thought as it would take to lower grosss. I recommend that the monetary value of the newspaper should be increased to increase grosss. Although it might somewhat diminish the figure of measure demanded. most clients won’t mind the addition as newspapers make up a really little per centum of their entire income. This manner the gross would increase. References Hoag. A. J. ( 4th Ed ) ( 2006 ) . Introductory Economics. World Scientific

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