Demand Elasticity as Indicator of Company Losses
There are three principal types of elasticity of demand. Firstly, it is the price elasticity of demand. Secondly, it is the income elasticity of demand. Thirdly, it is the cross elasticity of demand. It is essential to overview each of these three aspects to acquire a profound understanding of their role in the economy and employ information from the current research to comment on a proposed situation.
First of all, it is important to overview the concept of price elasticity of demand. In general, this factor represents the correlation between quantity demanded a product for the changes in the product’s price. Thus, these concepts in their practical use reflect the company’s responsiveness to rapidly changing market conditions. The elasticity of demand for the product is divided into three subcategories: elastic, unitary elasticity, and inelastic. Secondly, the income elasticity of demand exists. This factor reflects the correlation between changes in customers’ economic power and the demand for the product. Finally, cross elasticity of demand represents the connection between changes in price for the particular product and the price of products related to it. This factor describes the interrelations between various economic processes.
Concerning the proposed situation, in which it is found out that the price elasticity of my company’s product is -1.2 instead of projected -0.8. In general, it should be suggested that, according to the types of price elasticity, any results below zero indicate that the price elasticity is not elastic enough. Thus, the company’s overall revenue is at risk of decreasing. The continuous fall in price elasticity, represented in this situation, shows that the company is taking losses.