# How is the price elasticity of demand

One of the basic concepts of the economy - demand depends on many factors, which include the level of commodity prices, consumer income, product quality and consumer tastes.But most closely depends on the demand and price levels.The index, called the "price elasticity of demand," captures the ongoing demand changes in accordance with the decrease or increase in prices by one percent.

elasticity of demand detected to produce a revision of prices.The company, therefore, is the most successful course of its pricing policy, so that it would bring greater economic benefits.The data obtained as a result allow to get acquainted with the reaction of customers to set the direction of production, in order to properly respond to the changes occurring in the market and occupy the adjusted share.

When calculating the price elasticity of demand using cross-elasticity coefficient and straight.To determine the latter, calculate the ratio of the changes in the volume of demand to changes in relative prices of goods.This indicator allows you to set the percentage change in demand at variable prices of goods by one percent.This ratio has several meanings.So, if it approaches infinity, this means that with lower prices increases consumer demand for goods, but if the prices go up, then consumers are completely refuse to buy.If the ratio is greater than one, demand is growing rapidly and is ahead of price increases.When the coefficient is less than unity observed the reverse situation.If the direct price elasticity of demand is equal to one, then the rise in prices and demand going on at the same pace.When this indicator is zero, the demand does not affect the price of goods.

In identifying factor of cross-price elasticity of demand, there is a comparison of the changes related to the relative volume of the demand for a particular product, when prices change by one per cent on the other.This indicator also has several meanings.For example, if the ratio is greater than zero, then the compared products are mutually interchangeable.If the increased price for butter, it may increase the demand, for example, vegetable fat.If the factor constituting the cross price elasticity of demand is less than zero, then the compared products are complementary.For example, when the rising price of gasoline, there is a decline in demand for cars.When the coefficient is equal to zero, the goods are not dependent on each other.That is one price change does not affect the demand for the other.

for companies engaged in the production of products, it is important to identify the elasticity.After graduating pricing goods are usually formed from the cost of production, so the resulting price of the goods is intended not only to compensate for them, but also bring profit to the manufacturer.Therefore, to study the price elasticity of demand because it is important that the pricing strategy of the company has been chosen correctly.

necessary to take into account the manufacturer that the elasticity of demand for its products may be different from the elasticity of demand in the market.The first indicator is always higher than the second, except in cases where a manufacturer of goods is a monopolist.When calculating the price elasticity is not necessary to dismiss such an important factor as the competition.Therefore, when calculating the coefficient of elasticity of demand used mathematical models take into account the personal experience of the director.

can reveal income elasticity of demand.If consumers have increased revenue by one percent, the demand will increase by the same amount.It follows that the elasticity is unity.

The material suggests that the elasticity of demand - the dynamics of consumer interest to certain groups of products according to changes in the level of prices.