Each business entity operates in a certain competitive environment, which actively influences it, forcing it to solve current problems and implement a strategy for further development.
Considering the essence of the competitive category environment, it seems important to agree with the authors, who interpret it as a set of market factors that determine the functioning of economic entities, the elements that implement market interactions. Research of this environment is a necessary element of developing the enterprise’s competitive strategy directed on maintenance of its viability.
The competitive environment encompasses a wide range of market factors and institutions. The policy of public authorities forms it, the actions and behavior of economic entities in the market, the activities of target associations and unions. One of its features is the elasticity of demand for goods formed in the relevant market.
Having identified the features of the manifestation of this demand, the producer will be able to form a more effective competitive strategy aimed at achieving its goals. The study of elasticity is relevant to the subjects that form the supply of goods in the agri-food market, i.e., agricultural producers and food industry enterprises.
Characteristic of The Price Elasticity: Types, Indicators, Factors
Elasticity (E) measures the strength of the influence of the cause on the result. The elasticity measure usually reflects the percentage alteration in one variable (outcome) for a one percent change in the cause value.
Price Elasticity Formula
The price elasticity (Ed / p) reflects the variation in the volume of demand (D) for a particular good X in percent, which will follow after a one percent alteration in price (Px) for this good.
For ordinary goods, the elasticity is always negative since, in the above formula, the negative value of the denominator corresponds to the positive value of the numerator.
Price Elasticity Characteristic
Consider the basic characteristics of price elasticity (Ed / p):
- Demand with unit elasticity assumes a proportional change in the amount of demand depending on price changes, as a result of which the total income remains unchanged (Ed / p = 1);
- Demand is elastic if the number of demand changes by a percentage greater than the price (Ed / p> 1);
- Demand is inelastic when the amount of demand changes by a lower percentage than the price (Ed / p <1);
- Demand will be completely inelastic when its value is constant regardless of changes in the price per unit of goods (Ed / p = 0);
- Perfectly elastic demand is depicted by the horizontal position of the demand curve (Ed / p = ∞).
Factors of Price Elasticity
Among the basic factors of price elasticity, it is necessary to highlight the following:
- Availability of substitute goods. The more full-fledged substitutes for this or that economic benefit and the closer they are to it in terms of consumer properties, the more elastic the demand for price;
- Alternativeness. The wider the analyzed product has the ability for application in alternative purposes, the higher its price elasticity of demand;
- The specifics of the use of individual goods. Here we have to distinguish goods of two main categories: long-term and short-term use;
- The time factor. In a short-term period, when the consumer has already begun to implement his plans, it is difficult for him to change the accepted line of behavior. Therefore, in the short-term, price demand is always less elastic.
What Is the Midpoint Formula in Economics and What are the Features of its Application?
Thus, the price elasticity shows how many percent will change the demand for goods when changing the factors that affect it (prices or consumer incomes) by one percent. Therefore, to determine the elasticity of demand, it is necessary to establish the level of change over a period of time or for different groups of consumers of demand and the factor whose effect is studied.
The Midpoint Formula
Traditionally, the percentage change in the indicator is determined on the basis of the ratio of the absolute change of this indicator to its initial value. However, the famous mathematician and economist R. Allen proposed to determine the ratio of changes in demand, prices, or consumer incomes not to the initial rate but to the middle point of the interval over which the change occurred. Then, for example, the change in demand will be determined by the formula:
where Q1, Q2 – the magnitude of demand before and after the change (for different groups of consumers or in different periods).
What is the Advantage of Using a Formula?
This approach is advantageous because it is quite flexible in the analysis of elasticity, both when increasing the value of the studied indicators and reducing them.
Seeking Help from Professional Writers
If you are studying economics and are faced with the need to make a calculation using a Midpoint formula, you can seek support from our professional writers. They will definitely help to complete everything at the highest level, observing the established deadlines and requirements for paper writing. Collaboration with specialists brings a number of benefits to clients. Don’t waste time, but get them right now!