Introduction help of diagrams and examples. Secondly,

Introduction

This report will examine two questions, what are the different types of
elasticity and their definitions with the help of diagrams and examples.
Secondly, it will also describe and explain in detail the two market structure
types.

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Elasticity

In
economics, elasticity is used to determine how changes in product demand and
supply relate to changes in consumer income or the producer’s price (Jennifer
Francis, 2017). To calculate this change, we can use the certain formula:

Elasticity =
% Change in Quantity / % Change in Price

 

In
this report, the two elasticities that have been chosen are price elasticity of
demand (the responsiveness of quantity demanded to a change
in price) for example, luxury goods:
jewelry, delicacies; goods, the value of which
is palpable for the family budget: furniture,
household appliances and
income elasticity of demand (the responsiveness of quantity demanded to a
change in income).  

 

Income
elasticity of demand(YED)

Elasticities can be used to summarize relationships between any pair of
variables. An important example is the income elasticity of demand, the
percentage change in quantity demanded with respect to a percentage change in
income (Morgan,2006).
Income elasticity of demand is a measure of how much demand for a good/service
changes relative to a change in income, with all other factors remaining the
same. Therefore, it accesses how
much the quantity required varies with respect to the modification in income.
Governments and firms use YED to assist them in making the choice of what goods
to manufacture and how a modification in overall revenue in the economy affects
the need for their commodities, whether it’s inelastic or elastic.

When the demand for goods rise at the same time the consumer income grows
is the definition of normal goods. As against this, inferior goods are the goods
which encounter a fall in demand as the income of consumption rises. (Surbhi S,
2016).

A normal good has a positive
income elasticity of demand. Normal goods denote the products which are
required in growing quantities as the income of a customer increases and in
declining amount as the income of a purchaser declines, but the price does not
change (Surbhi S, 2016). However, the degree of the upturn in demand will be
less than the growth in income. Examples that fall into this category are
furniture and automobiles.

 An inferior good has a negative income
elasticity of demand. An inferior good occurs when the demand for the product
drops when income increases. Therefore, the requirement for inferior goods is
contrariwise connected to the income of the customer. (Morgan,2006). Inferior
goods or low-quality products are items with better options. For example, in
the case of public transport, when a rider’s salary increases he may choose to
stop taking the bus and purchase a car which his increased income allows him to
buy.