3. Cross-price elasticity of demand

Elasticity of demand

A survey on how many people use Uztelecom internet provider has been conducted among 121 respondents and we found out that 72 of them make use of it, that equals to 59.5%. They were asked some hypothetical questions to see how these conditions may affect their demand for Uztelecom internet provider.

1.Price elasticity of demand.

It is clear from this graph that when the service price of Uztelecom rose by 20%, 34 respondents out of all 72, who used Uztelecom, continued to make use of it. It means that when the cost grew by 20%, our respondent's demand was consequently reduced by 52.77%. According to the results calculation of the price elasticity demand will be:

PЄ_D= =

The answer we get is -2.6, whose absolute value is greater than 1, which means price change affects the demand also.

2. Income elasticity of demand.

In this case, we asked respondents to imagine that if their average income increased by 20%, 83 respondents of all 121 participated stated that they would purchase more Internet packages. The demand for this service here rised up to 15%. If we calculate the income elasticity of demand, it will be:

YЄ_D=

Here our answer 0.75, means that uztelecom is income elastic as well as this service is a normal good because income and demand are directly proportional with each other. However, the service is not evaluated luxury good among our respondents. As 0.75 is smaller than 1.

3.Cross-price elasticity of demand.

In this stage, we tried to estimate competitiveness of Uztelecom. Participants were asked what if another internet providing company offers the same service for 20% lower price, 35 participants answered positively. As we see this resulted in 51.38% demand reduction. Calculation for cross-price elasticity demand is as follows:

Cross- price Elasticity =

From this result, it is more clear that 2.5 is greater than 1 Uztelecom is cross-price elastic.

Reference :

1. 
   Sloman, J. and Garrat, D. (2013). Essentials of economics, 6^th ed. London: Pearson Education
   

Link to our survey: https://docs.google.com/forms/d/19TJ9Z5cEV4yww2Q5LsfLFuYkpktQwTAMmVz5TMa01dY/edit?usp=sharing