Price Elasticity of Demand for Broadband

Question: Discuss about the Price Elasticity of Demand for Broadband. Answer: Introduction Price elasticity of demand is a measurement, which is used in economics to reflect the responsiveness or the elasticity. According to Thimmapuram Kim (2013), it can be mentioned that price elasticity of demand is the measurement, which reflects the relationship among the change of the quantity demand of a particular products and the change in price. Therefore, it can be stated that, Price elasticity of demand= (percentage change in quantity demanded/ percentage change in price) Price elasticity on normal goods In terms of economics, normal goods are the goods when the income increases; demand for the goods will be increased. However, if the price level of the products would increase, then the demand for the goods would be decreased. Figure 1: Normal goods (Source: Created by author) The above figure depicted that the demand for goods would increase with the rise in income level, but if the price level would increase of the normal goods, the quantity purchase by the consumers would be decreased. This would decrease the price elasticity of demand for the normal goods would decrease. Price elasticity on luxury goods In terms of economics, luxury goods are the goods for which the demand for the products would increase higher than the increase in income. On the other hand, it can be mentioned that change of quantity demand of luxury goods would be decreased if the price of the goods would increase. However, if the income level of the consumers would increase, then the demand for the luxury goods also increase with the rise in the price level. In the opinion of Liu et al., (2016), price elasticity of the luxury goods is highly elastic. Some of the examples of luxury goods are jewellery, cars, air conditions etc. Figure 2: Demand curve for luxury goods (Source: Created by author) From the above figure, it can be observed that with the rise in the price level of the luxury goods from P1 to P2, percentage of quantity demand would also increase from Q1 to Q2. The demand would also increase from D1 to D2 with the rise in the income level. This will also happen when the level of income will also increase. Therefore, the above figure depicted that the change in the price level is lower than the change in demand. Therefore, it can be inferred that due to the change in price level, the change in quantity demand would increase more if the income level would increase. In this connection, Coglianese ey al., (2016) added that the price elasticity of demand is inelastic in case of upper class people, whereas is elastic in case of lower and the medium income group people. Price elasticity on giffen goods As per the concept of consumer theory, Galperin Ruzzier (2013) mentioned that giffen good is the good, which people consume more if the price of the products increase or the level of income of the consumers also decreases. Some of the examples of giffen goods are salt and sugar. Demand for these products is perfectly inelastic. Therefore, in this context, it can be mentioned that if the price of the products would change or fluctuate massively, percentage change in the quantity demand for the products would be remaining same. Figure 3: Demand curve for giffen goods (Source: Created by author) The above figure depicted that in case of giffen goods, the demand curve is perfectly inelastic elastic. If the income level deceases or the price level of the products increases, then the percentage of quantity demanded will be increased. From the above figure, it can be observed that with the rise in price level from P1 to P2, the demand for the goods is remaining same. Therefore, in case of giffen goods the price elasticity would be increased. As per the statement of Thimmapuram Kim (2013), the income effect dominated the substitution effect. Conclusion This study highlights the price elasticity of three different types of goods such as normal goods, luxury goods and the giffen goods. After analyzing the study, it can be inferred that the price elasticity would be decreased with the rise of price level of goods in case of normal goods. On the other hand, in case of luxury goods, the price elasticity would be inelastic in case of upper income group people and would be elastic in case of medium and lower income group of people. Lastly, it can be concluded that the price elasticity of demand for the giffen goods would be inelastic. References Coglianese, J., Davis, L. W., Kilian, L., Stock, J. H. (2016). Anticipation, tax avoidance, and the price elasticity of gasoline demand.Journal of Applied Econometrics. Galperin, H., Ruzzier, C. A. (2013). Price elasticity of demand for broadband: Evidence from Latin America and the Caribbean.Telecommunications Policy,37(6), 429-438. Liu, S., Jackson, J., Khalaf, K., Meyer, K. L., Brown, D. (2016). Price Elasticity of Demand for New Oral Anticoagulant Agents among Patients with Non-Valvular Atrial Fibrillation.Value in Health,19(3), A49. Thimmapuram, P. R., Kim, J. (2013). Consumers' price elasticity of demand modeling with economic effects on electricity markets using an agent-based model.IEEE Transactions on Smart Grid,4(1), 390-397.