In this part, create a summary of an article related to economics and "Elasticity of Demand."

In your summary:

? First, rewrite the article about the elasticity of demand, including any formula or examples.

? Then, explain what you have learned about "Elasticity of Demand" or what you thought it is.

? Solve the problem at the end of the article.

? when Creating the summary, add all the formulas

Revenue and Elasticity of Demand Elasticity enables us to analyze the effect of a price change on revenue. An increase in price usually leads to a fall in demand. However, the revenue may increase or decrease. The revenue R = pq is the product of two quantities, and as one increases, the other decreases. Elasticity measures the relative significance of these two competing changes. Example: Three hundred units of an item are sold when the price of the item is $10. When the price of the item is raised by $1, what is the effect on revenue if the quantity sold drops by a. 10 units? b. 100 units? Solution Since Revenue = Price . Quantity, when the price is $10, we have Revenue = 10 . 300 = $3000. a. At a price of $11, the quantity sold is 300 - 10 = 290, so Revenue = 11 . 290 = $3190. Thus, raising the price has increased revenue. b. At a price of $1 1, the quantity sold is 300 - 100 = 200, so Revenue = 11 . 200 = $2200. Thus, raising the price has decreased revenue. Note: Elasticity allows us to predict whether revenue increases or decreases with a price increase. Relationship Between Elasticity and Revenue If E 1, demand is elastic, and revenue is increased by lowering the price. . . E = 1 occurs at critical points of the revenue function. Solve: After writing your summary use what you have learned to answer the following. 1. There is only one company offering internet service in a town. Would you expect the elasticity of demand for internet service to be high or low? Explain. 3ELASTICITY OF DEMAND The sensitivity of demand to changes in price varies with the product. For example, a change in the price of light bulbs may not affect the demand for light bulbs much, because people need light bulbs no matter what their price. However, a change in the price of a particular make of car may have a significant effect on the demand for that car, because people can switch to another make. We want to find a way to measure this sensitivity of demand to price changes. Our measure should work for products as diverse as light bulbs and cars. The prices of these two items are so different that it makes little sense to talk about absolute changes in price: Changing the price of light bulbs by $1 is a substantial change, whereas changing the price of a car by $1 is not Instead, we use the percent change in price. How, for example, does a 1% increase in price affect the demand for the product? Let 4p denote the change in the price p of a product and 4q denote the corresponding change in quantity q demanded. The percent change in price is Ap/p and the percent change in quantity demanded is 4q/q. We assume that 4p and 4q have opposite signs (because increasing the price usually decreases the quantity demanded). Then the effect of a price change on demand is measured by the absolute value of the ratio. Percent change in demand = = Aq . P | p Aq Percent change in price Ap q Ap For small changes in p, we approximate p Ad by the derivative ap. We define: The elasticity of demand for a product, E, is given approximately by E = AP/D , or exactly by E = la .da ap Increasing the price of an item by 1% causes a drop of approximately 1% in the quantity of goods demanded. If E> 1, Then a 1% increase in price causes the demand to drop more than 1%, and the demand is elastic If O S E