EGT1 Task2 paper Gousheh - Elasticity EGT1 Task 2 Eric...

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Elasticity EGT1 Task 2 Eric Gousheh Western Governors University Student ID #259033 My Mentor: Thomas R. Leshney
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Elasticity of Demand Elasticity of Demand is the relationship between a change in price in conjunction with the amount of goods or services needed to satisfy demand. If consumers purchase larger quantities of widgets because the company lowers the widget price, there is usually an increase in profit. Cross-price Elasticity Cross-price Elasticity measures how consumers respond to the change in widget pricing. If company 1 increases their price per widget, company 2, a direct competitor, will most likely receive customers who would have normally purchased the widgets from company 1. A good example of this would be that if Starbucks raised their price per cup of coffee 20%, then consumers may choose to purchase coffee from Caribou Coffee instead. Income Elasticity Income Elasticity is determined by the change in income vs the demand in quantity of widgets. Widgets or services are viewed as either normal/superior, or inferior. When a widget or service is normal, it has been determined that the demand for the widget or service increases with increased income levels, and the opposite applies to decreased income levels. Inferior is when sales of the widgets or services decreases with increases in income.
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