Egt1 Task 2

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EGT1 Task 2
Supply and Demand
A.
Elasticity of demand refers to the level of reaction that consumers will have to a change in price of a product. Elasticity of demand has 3 categories or results from the equation. The equation used to determine elasticity of demand is the percentage of change in quantity of demand divided by the percentage of change in price. After this equation is calculated you will need to compare the answer or coeeficient with the critical threshold. For elasticty of demand the critical threshold is 1. If the result is a number higher than the number one than the product will be said to be elastic. If the product is determined to be elastic than it is sensitive to price and consumers will react more by buying less of the product. Elastic products have a rate of more than one. If the result of the equation is lower than the number one than the product is said to be Inelastic. These products are considered less price sensitive than those that are elastic meaning that the reaction of less sales from consumers will be smaller than in a situation where a product is elastic. Finally, if the result of the equation is equal to the number one then the product is considered unit elastic. This occurs when any percentage change in price results in the exact same change in quantity demand. This is very rare and does not occur often.
B.
Another type of elasticity to measure is cross price elasticity. Cross price elasticity measures the consumer reaction or demand in purchasing on one product when the price of another product that is similar is changed. Essentially it is a comparison of two similar products when one changes their price. To determine the cross price elasticity you will divide the percentage change in quantity of demand of the first product by the percentage change in price of the second product. Different from Elasticity of…...

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