Price elasticity of demand is a measure of how much quantity demanded changes as a result of a change in price. The measurement of elasticity is obtained by taking the percentage in quantity and dividing it by it's percentage change in price the result is called the elasticity coefficient. Results ranging greater than one indicate the commodity being elastic which also says they can be substituted. Results less than one (or in decimal form) are inelastic and are difficult to find substitutes for or have no alternative substitute.
In the article I am using as an example it states "North Americans thirst for oil has reached a turning point, as high gasoline prices and slow economic growth finally forces consumers to cut back on their fuel consumption. Among US customers [demand] elasticity is low, but not quite zero." As a result as the price increases for oil per barrel due to the decline in oil production the demand also decreases. Consumers look for alternative (cheaper) ways of travelling or conducting business decreasing (and cutting back on) fuel consumption.
![]()
I picked an article from the Globe and Mail on "High Prices crunch U.S. oil demand" posted on May 13, 2011 and after much review and research I found that crude oil demand is almost perfectly inelastic. As a result of performing the elasticity coefficient the elasticity for crude oil is near zero; 0.01 and 0.02 for the years 2008 and 2009. Should the price of Oil increase Total Revenue will increase and should the price of crude oil decrease the expected revenue generated will decrease. The quantity demanded for crude oil is not very responsive to a price change. There is no elasticity in crude oil because oil is a rare commodity.
http://proquest.umi.com.libresources1.sait.ab.ca/pqdweb?did=2345378271&sid=2&Fmt=3&clientId=5337&RQT=309&VName=PQD
No comments:
Post a Comment