Income elasticity of demand

When the price elasticity factor is greater than one, then the good is said to have elastic demand (Hubbard and O’Brien 2015). If the coefficient is equal to 1, then the product is said to have unitary elasticity, and whenever it’s less than one, then it’s inelastic (Hubbard and O’Brien 2015). Elastic demand means that a product is usually highly responsive to a change in the price. In-elastic demand implies that a comparable change in the price results in…

offer. In effect, this means that no single buyer or seller can influence the market price. Economics assumes that in this market there a consumers who are rational decision makers who have perfect information about the product. Therefore, The actual demand for a product depends on various variables. However, for now we will focus the price, which can be seen as the most important. It is argued that in most cases if the price of a product increases, consumers will avoid purchasing the product,…

major effect is the substitution due to the income elasticity mechanism. Although tourism is generally considered an income elastic service, the concept of inferiority may be considered as valid in some situations; this concept is based on the increase in the consumption of some of these goods when the income decreases (Stabler et al 2010). For example, this might particularly affect negatively luxurious tourism destinations, due to the high-income elasticity, and it might affect positively low…

Thus, if the demand for the product increases, the organization's response to increased demand will be that they will hire more workers and will produce all. If the demand for the product is reduced, the organization's cash inflows will be reduced because its costs will exceed its profits. The organization's response to this situation will be that they will cut their staff's work to reduce costs. As with demand, there are two things that can happen. When the product supply increases, demand will…

decrease in the amount of disposable income for consumers; as the price of cigarettes is relatively high it will impact of the smokers’ disposable income and decreases their living standards. Second, indirect tax is a type of regressive tax. It’s a fixed amount of tax that makes a larger percentage from low-income people than from high-income people. This may increase income inequality as indirect tax hits lower-income individuals harder than it does higher-income individuals. Third, based on…

new sales marketing schemes or adjust share earnings, whereas others face the unavoidable pressure of closing stores. According to Performing Sports Group Ltd., the plummet in sales is a result of the “sudden shifts in demand” (Germano). There have been two different shifts in demand in varying sections of the sporting goods market: traditional in-store and online shopping (specialized…

There is a lot of competition and being able to gain more business would put any business owner at an advantage of becoming one of the most successful business owners. In business, the purpose of elasticity is to measure the degree of response from a buyer or seller to change in the price of a certain good or service. This would be important to understand in a case such as a business owner who would want to lower prices or have a sale. The business…

Article that I chose is about raising of indirect taxes on cigarettes in China. This is an example of government intervention in order to try to reduce smoking in China. Cigarettes are a demerit good. Demerit goods are any goods with negative externality of consumption, which means that demerit good is a good that has a bad impact on consumer and society. The market for cigarettes is perfect example of market failure. MSB- Margin of social benefit MPB- Margin of private benefit…

The demand for Ford would, in the short term, be somewhat elastic, as the purchase of a new vehicle can often be delayed because of non-availability of funds. The demand for a specific model of Ford would likely be highly elastic, because there are so many substitutes from the competitors. The figure 7 and 8 shows how much the consumers spend on automobiles as part of their monthly disposable income. Figure 7 – % consumer spend on automobiles (Source…

excise taxes is an effective strategy for reducing excessive alcohol consumption and related harms. The impact of a potential tax increase is expected to be proportional to its magnitude and to be modified by such factors as disposable income and the demand elasticity for alcohol among various population groups. The reviewed studies provide consistent evidence that higher alcohol prices and alcohol taxes are associated with reductions in both excessive alcohol consumption and related, subsequent…