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Suppose that your research shows that a 5% change in the price of your company’s product...

Suppose that your research shows that a 5% change in the price of your company’s product results in a 3% change in it quantity demanded. How will you describe the demand for your company’s product? Suppose your answer with suitable calculations.

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The prime factor which influences the demand of a product is its price. A consumer acts so rationally while purchasing a product. He tries to maximize his satisfaction while purchasing a product. Thus he will be highly sensitive and reactive to the change in price. When price increase the consumer reduce his purchase as it is not rational to purchase a commodity. Similarly when the price falls the consumer purchase more of the commodity By the concept of elasticity of demand we can measure the degree of responsiveness of the consumer to the price changes. It measures how much the quantity demand changes in responsive to the price change. By measuring the elasticity a firm or an entrepreneur can fix a price which gives maximum profit The elasticity of demand of a product can be calculated by diving the percentage change in quantity demand with the percentage change in price PED-Δ40D By comparing the change in demand and change in price we can say the deman for the product is more elastic, less elastic, unitary elastic, perfectly elastic and perfectly inelastic. In case of more elastic demand a small change in price leads to a larger change in quantity demand. Here the elasticity quotient is greater than l.(71) In other words the % change in quantity demand is greater than the % change in price. But in case of less elastic demand a larger change in price leads to a smaller change in quantity demanded. In this case the elasticity quotien will be less than l .(>0<1) Here a large % change in price leads to the smaller % change in quantity demanded. In case of unitary elastic demand a given change in price leads to the same change in quantity demanded. The % change in price and quantity demanded are the same. In such a case the elasticity quotient is 11). In case of perfectly elastic demand a given change in price leads to infinite change in demand. In this case the elasticity quotient is equal to When the demand is perfectly inelastic a change in price produce zero effect on the quantity demand. The elasticity quotient in such case is equal to 0 In the companys product, a 5% change in price leads to 3% change in quantity demanded. Then the price elasticity of demand is 390.5%-0.6 Here the demand is less elastic as the elasticity quotient is less than but greater zero From the research it is observed that the demand for the product is less elastic in nature. The increase in price does not produce considerable loss of customers.

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