# The price elasticity of water demand economics essay

We estimate the price elasticity of water demand with household-level data, structurally modeling the piecewise-linear budget constraints imposed by increasing-block pricing we develop a mathematical expression for the unconditional price elasticity of demand under increasing-block prices and compare conditional and unconditional elasticities analytically and empirically.

Price elasticity of demand is the quantitative measure of consumer behavior whereby there is indication of response of quantity demanded for a product or service to change in price of the good or service ( mankiw,2007. The magnitude of price discount a company can implement depends much on the price elasticity of the demand of a particular product, and the level of the product image the following illustration explains how the elasticity level of a product affects the amount of extra demand it can create. Price elasticity of demand is only a disadvantage to a business if the business does not know how to determine how elastic the demand for its products is otherwise, elasticity of demand is.

Price elasticity of demand is a measure of the responsiveness of change in quantity demanded of a good/service to a change in price, ceteris paribus as the law of demand indicates, when the price of a good/service increases, the demand of it will decrease.

41) summarizes a few studies on the price elasticity of demand for gasoline by informing us that any given 10 percent increase in its price will result in a decrease of less than 3 percent in quantities purchased coincidentally, the gasoline prices tend to fluctuate by 10 percent or more during any given week. In the diagrams of figure 1, ∆p represents change in price, ∆q change in demand, and dd the demand curve price elasticity of demand is unity when the change in demand is exactly proportionate to the change in price for example, a 20% change in price causes 20% change in demand, e = 20%/20% = 1. The data on industrial demand is less evident, but suggests an elasticity of well above -10 for low prices of water, that is, before recirculation systems have been installed.

Demand functions provide the basic economic relationships required to understand how water use will this paper proposes a simple method for estimating the price elasticity of demand reproduce their study using a single water provider because most water systems’ price. There are mainly two types of elasticity, the elasticity of demand which includes price elasticity of demand, income elasticity of demand, and cross elasticity of demand as well as elasticity of supply (mcconnell, brue, & flynn, 2009)ii. Cross-price elasticity assists in the comparison of demand of a good suppose the price of another is varied the other can be substitutes or complements cross-price elasticity helps in setting the price a good suppose the prices of other are varied.

## The price elasticity of water demand economics essay

Whilst the price of water does not explain water demand by this group of households (ie, those who collect and purchase water), price of purchased water is significant in explaining the demand for purchased water where a 1% increase results in a 1667% decrease in its demand for purchased water by both groups of households. The fluctuation in the demand for a product due to the increase in its price has been identified as price elasticity of demand or ‘ped' this is a status that is very much responsiveness of the total quantity of product demanded, in proportion to the change in the determined price of the goods or service.

In this essay we will discuss about price elasticity of demand after reading this essay you will learn about: 1 meaning of price elasticity 2 methods of measuring price elasticity of demand 3 importance of the concept of price elasticity 4 cross elasticity of demand 5 concept of income elasticity of demand 6 factors affecting elasticity of demand. In spite of the relevance of different techniques and data, the estimates of price elasticity of water demand in the majority cases show that it is inflexible income elasticity, which is the topic of a lesser number of studies, in the majority studies get a rate lower than 1, but then water demand also found to be inelastic with relation to income changes.

The price elasticity of water demand economics essay
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