Price Elasticity Essay

*** 1st November 2012 Examine whether the terms shot of take in for sieve is likely to be elastic or inelastic. charge elasticity of guide is the measure of how real much of the measuring stick demanded transposes in regards to a tack in value. The PED is measured by the interest formula % Change in sum Demanded of the crop/% Change in P strain. If the PED is slight than 1, the good is inelastic- indicating that in that location is a little sort in quantity demand comp ard to the harm flip. When the PED is gr tucker outer than 1, the good is elastic- essence the quantity demanded go forth stir importantly comp bed to a small worth change.The charge elasticity for sift could vary passim several regions- but it trick be argued that it is mainly inelastic because of the destiny of the crossway and the value the product holds in galore(postnominal) households. However, in many regions, strain has proved to be elastic because of the number of taut subst itutes it has. The dowery change in expense is greater than the piece change in quantity demanded The constituent change in set is greater than the percentage change in quantity demanded To begin with, the p sieve elasticity of demand for strain can be deemed inelastic.Clearly, various households consume strain on a regular basis. question shows that rice is a staple good, or a main element in one and only(a)s diet, in 34 of the worlds countries. With such a culture and mindset, households would un get outing to alter their demand for rice. Since rice is so commonly consumed, it is considered a necessity amongst households. Families of East-Asian descent, especially, are the largest consumers of rice- and eat rice in every meal. For instance, the price of a rice pack could be increase to $2. 50 from $2. 00 the change in price impart be 25%.For a necessity product, the low reluctance of changing to an some other product would result in a smaller percentage change in dema nd- forcing the PED to be less than 1 and for rice to be inelastic. Although the necessity of rice does change from consumer to consumer and nation to nation, in a growing population in the East, rice has become more(prenominal) of a necessity than any other staple food. Since rice is engrained into cultural roots so deeply, a long-term substitute cannot be found- fashioning the good inelastic in the lilliputian run and long run.In addition, the price elasticity can directly depend on the cultivation of a nation. If the country is developed, and per capita incomes are high, rice go away be inelastic. Since the price of rice takes up a very small proportion of the family income, the household is marvellous to change to an alternative- enforcing a dismount percentage change in quantity demanded than percentage change in price. On the other hand, if the countrys economic development is low, or a low gross domestic product per capita, the price of rice may break a significant po rtion of the second-rate mans income.As a import of a price change, then, the consumer give await for substitutes and alternatives for rice, as he or she will not be willing to deport that extra amount. In Bangladesh, for example, where rice is considered a staple food, the per capita income is $750USD. A fundament of rice costing $24USD would be 3. 2% of an comely Bangladeshi mans hire- in contrast to an American who earns $48,450USD would spend 0. 05% of his salary in purchasing the same bag of rice. To summarize, a nations per capita income has a direct impact on whether or not a good such as rice is elastic or inelastic.As the price may decrease for rice, the quantity demanded big businessman increase more significantly as buyers of the substitutes may start purchasing the product that has take down of its price. As the price may decrease for rice, the quantity demanded might increase more significantly as buyers of the substitutes may start buying the product that h as cut of its price. However, rice can be considered elastic due to several reasons. Firstly, one particular brand of rice would wee countless substitutes. There are bags of rice that are antithetic in quality, divergent in quantity, different in flavor, different in place of growth, etc.When exposed to a change of price, a consumer will inescapably gain the inclination to substitute his or her initial product with an alternative that is priced lower to what the new price is of the previous good. Since the substitutes of rice are very similar to rice itself, if not the same product itself, mass will be willing to change from one brand to another. The more substitutes at that place are for rice, in other words, the more elastic the PED will be, as the percentage change in quantity demanded will be greater than the percentage change in price.Quantity demanded, in other words, will decrease drastically if there are many substitutes, as consumers will sacque from rice to the subs titute product there is. If the price reduces, as well, many consumers will shift from the substitutes and consume the product that has cut of its price. In conclusion, although many substitutes can be found for rice, populations around the world eat rice incessantly. Since this continuous consumption has direct to rice becoming a necessity, in most parts of the world a change in price will not affect the change in quantity demanded- making rice loosely inelastic.