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Free «Price Elasticity of Demand» Essay Sample

Suppose you are a painter, and the price of a gallon of paint increases from $3.00 a gallon to $3.50 a gallon. Your usage of paint drops from 35 gallons a month to 20 gallons a month. Perform the following:

The Price Elasticity of Demand for Paint and Calculations

Price elasticity of demand = % change in demand / % change in price

            % change in demand = {(Q2 - Q1) / Q1}*100

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                                               = {(20 - 35) / 35}*100

                                               = {-5/35}*100

                                               = - 14.26

            % change in price = {(P2 - P1) / P1}*100

                                               = {(3.5 - 3.0) / 3.0}*100

                                               = {0.5/3}*100

                                               = 16.67

Price elasticity of demand = % change in demand / % change in price

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                                                = (-14.26) / 16.67

                                                = - 0.86

Type of Demand

The price elasticity of demand for paint is inelastic. This is first of all due to the fact that the figure resulting form the calculation of the price elasticity of demand for paint is a figure between zero and one that is, it is 0.86.

Explanation and Interpretation of Results

 
 
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This elasticity is further explained by the fact that the percentage change in quantity demanded is less than the percentage change in the price of the paint. It is a common economic principle that the demand for comforts and necessaries is less elastic as compared to the demand of items that are considered as luxuries (Mankiw, 2008). The slight decrease in paint which in this case is a comfort is less likely to increase or decrease the quantity that is demanded. With this picture in mind it is important to take note that the price of paint is less likely to influence the quantity that is demanded by the painters. By reducing the price as a means towards attracting more customers, it is more probable that the paint manufacturer would earn no incentives form the lower prices. On the other hand, when the price of the paint is increased, it means that the paint buyers would still buyer more or less the same amount of paint quantity. It therefore means that the producers could make optimal profits during such times of high prices as quantity would be reduced in a relatively lower proportion (Mankiw, 2008).

Factors That Influence the Price Elasticity of Demand

Most recently I bought a pair of Timberland Boots from a local clothing store. It was clear from the range of boots that I was choosing from that virtually all the quality boots were all under the Timberland label. This meant that there was no any close substitute for me to turn up to. With the generation that I belong to and the trend patterns that are today in the market, it is clear that Timberland boots are becoming more of a common necessity. The boots can therefore be categorized as having a nature belonging to necessities.

Although they are considered as one of the most expensive brand of male shoe in the market, Timberland boots consume a vey small proportion of the money I have since I do not have to frequently budget for them. Finally the final factor that affected the price elasticity of the boots at the time of purchase was the fact that I was buying the boots during the Christmas festive season. This meant that the sellers were having the prices fixed to the boots at the optimal point. On the other hand, the time of buying offered a great extent of demand hence reducing the level of elasticity of the boots (Mankiw, 2008).

Given the conditions that have been critically analyzed in the upper part of the paper, it is clear that the demand for the Timberland boots is inelastic. The rate of change in the price levels of the boots affects to a very small extent the rate at which the quantity purchased by the good changes.

Timberland boots are currently supplied at a high rate while the demand is also high given the fashion and trend pressures. The effect of this to the boots is that the production and sale of the boots are becoming even more and more inelastic to the price changes in the market.

   

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