Headlines
  • Economies of Scale vs. Economies of Scope

Accounting for Intangible Assets

08 Mar 2012 / 0 Comments

Steve Collings looks at the fundamental principles in accounting for goodwill and intangible assets and also looks at some fundamental differences between current UK GAAP, IFRS and the proposed IFRS for SMEs.As accountants we are all aware that an intangible asset does not have any physical form

Read More...

Internal Rate Of Return: An Inside Look

Gordon Growth Model

Calculating Covariance For Stocks

Financial Accounting
Economics

Economies of Scale vs. Economies of Scope

Generally speaking, economies of scale is about the benefits gained by the production of large volume of a p...

Currency Appreciation and Depreciation

Current and Financial Account Surpluses and Deficits Current account deficits (or surpluses) and financi...

Communication Skills

A Sample Cover Letter For A Job Application

Most jobs ask for a cover letter along with your resume. A cover letter can make or break your case with th...

Communication

  VERBAL COMMUNICATIONThe term “Verbal” implies ‘use of words’ which makes language. Verbal communicati...

Information Technology

    Lesson 4: Creating Charts

    In Microsoft Excel, you can represent numbers in a chart. On the Insert tab, you can choose from a variety o...

Laws

INDEMNITY and GURANTEE

Normal 0 false false false MicrosoftInternetExplorer4 ...

Contract of Agency

KINDS OF COMPANIES

Contract: express and implied terms

Contract: the elements of a contract

Management and Marketing

Interest rate risk management

The management of risk is a key area within a number of ACCA papers, and exam questions related to this area ...

Regional and Sustainable Development Department

RSCG is the Capacity Development and Governance Division of the, Regional and Sustainable Development Departm...

Comparison of financial and management accounting

There are two broad types of accounting information: • Financial Accounts: geared toward external users of...

Financial Management

The Capital Asset Pricing Model

...

Mathimetics

Linear Equation with Video Examples

An equation is a mathematical statement that has an expression on the left side of the equals sign (=) wi...

Straight-Line Equations

Solving Literal Equations

Systems of Simultaneous Equations

SolvingSystemsAlgebriacally

Cost Accounting

Product vs Period Costs

Product Costs: Include all costs that are required to make a product Product costs are: Direct Material...

Manufacturing Overhead

Zero-Base Budgeting

cash budget

Master Budget

Statistics
Audit and Assurance
Economics
Published On:Wednesday, 28 December 2011
Posted by Muhammad Atif Saeed

Elasticity of Demand

Determinants of price elasticity include:
  • Availability of substitutes - if substitutes are plentiful, then demand should be elastic.
  • Relative percentage of expenditure - if an item takes up a considerable proportion of a consumer's income, then demand should be elastic; if it takes up a very small amount, then demand should be expected to be inelastic.
  • Amount of time - consumers can make more adjustments to prices changes over time and, therefore, demand tends to be more elastic as time passes.
  • Necessities or luxuries - demand for necessities will tend to be inelastic, while demand for luxuries will tend to be elastic.
Cross Elasticity of Demand
Cross elasticity of demand relates the percentage change in quantity demanded of a good to the percentage change in price of a substitute or complementary good. Examples of complementary goods would include peanut butter and jelly, and large SUVs and gasoline. The cross elasticity of demand will be positive for a substitute, and negative for a complement; i.e. demand for a substitute (complement) will go up (down), if the price of the substitute (complement) goes up.
The following formula can be used to calculate cross-elasticity of demand:

Formula 3.2

Where:  CEp is the cross-price elasticity coefficient,
%ΔQ represents the percentage change in quantity demanded, and
%ΔP represents the percentage change in price of the substitute or complement.
Income ElasticityIncome Elasticity is defined as the percentage change in quantity demanded divided by the percentage change in income.  The calculations are similar to those for price elasticity, except that the denominator would include a change in income instead of a change in price.
Usually the amount of goods purchased will be positively correlated with income; if consumers' incomes go up (down), more (less) goods will be purchased. Any good with a positive income of elasticity of demand is said to be a normal good. Luxury goods have high income elasticity (greater than one). The proportionate amount of spending for those goods will go up as incomes increase.
The amount spent on some goods decrease as incomes goes up. Such goods are referred to as inferior goods. Examples of inferior goods include margarine (inferior to butter) and bus travel (inferior to owning a vehicle).

About the Author

Posted by Muhammad Atif Saeed on 21:25. Filed under , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

By Muhammad Atif Saeed on 21:25. Filed under , . Follow any responses to the RSS 2.0. Leave a response

0 comments for "Elasticity of Demand"

   

Leave a reply

Visit Counters

free counters
Free counters

About Me

My photo
I am doing ACMA from Institute of Cost and Management Accountants Pakistan (Islamabad). Computer and Accounting are my favorite subjects contact Information: +923347787272 atifsaeedicmap@gmail.com atifsaeed_icmap@hotmail.com
  1. Accounting for Intangible Assets
  2. Fair Value Measurement of Financial Liabilities
  3. The Concept of Going Concern
  4. The Capital Asset Pricing Model
  5. Bond Valuation
  6. Asset Management Market Efficiency Asset Management Market Efficiency
x

Welcome to eStudy.Pk....Get Our Latest Posts Via Email - It's Free

Enter your email address:

Delivered by FeedBurner