We use demand elasticities to quantify how much quantity demanded for a product would change given...
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We use demand elasticities to quantify how much quantity demanded for a product would change given changes to the factors that affect demand. Some common demand elasticities are: own-price elasticity, cross-price elasticity, income elasticity and advertising elasticity. Importantly, elasticities are defined with percentage changes. For example, own-price elasticity defines the percentage change in quantity demanded given a 1% change in the own price of that product. o If own-price elasticity of a product is -.8. That means a 1% increase in price will decrease quantity demanded by .8%. This information can be used to infer the change in quantity demanded for any change in own-price. For example, again, if own-price elasticity of a product is -.8, a 5% increase in price will lead to a 4% decrease in quantity demand. (5% is 5 times 1%, so the change quantity demand is 5 times -.8). The expression for own-price elasticity of good x is: EQ..Px %AQ %AP If a firm's demand curve is linear as shown below, own-price elasticity will vary depending on how much the firm is currently selling. If sales are low, demand will be more elastic while if sales are higher, elasticity will be more inelastic. Price Elastic Unitary elastic 40 35 H G F 30 25 20 Demand 15 10 Inelastic E D C B Price Elastic Unitary elastic 40 H 35 30 F Inelastic E 25 D 20 Demand C 15 B 10 5 A Quantity 0 10 20 30 40 50 60 70 80 At point H on the above demand curve P=35 and Q=10. At point G on the demand curve P-30 and Q-20. To calculate the own price elasticity when moving from point H to point G, first calculate percentage change in price and quantity: percentage change in price = (35-30)/35 = .1429 (after rounding) = 14.29% percentage change in quantity = (10-20)/10=-10/10=-1=-100% elasticity=-100/14.29 = -7.0 (after rounding) Note that percentage changes are normally calculated using the starting price and quantity in the denominator. So, moving from point H to G, use the values at point H in the denominator. Question At point C: P=10 and Q=60 At point B: P=5 and Q=70 Please calculate the own-price elasticity when moving from point C to point B. In your answer please don't forget to include the negative sign! We use demand elasticities to quantify how much quantity demanded for a product would change given changes to the factors that affect demand. Some common demand elasticities are: own-price elasticity, cross-price elasticity, income elasticity and advertising elasticity. Importantly, elasticities are defined with percentage changes. For example, own-price elasticity defines the percentage change in quantity demanded given a 1% change in the own price of that product. o If own-price elasticity of a product is -.8. That means a 1% increase in price will decrease quantity demanded by .8%. This information can be used to infer the change in quantity demanded for any change in own-price. For example, again, if own-price elasticity of a product is -.8, a 5% increase in price will lead to a 4% decrease in quantity demand. (5% is 5 times 1%, so the change quantity demand is 5 times -.8). The expression for own-price elasticity of good x is: EQ..Px %AQ %AP If a firm's demand curve is linear as shown below, own-price elasticity will vary depending on how much the firm is currently selling. If sales are low, demand will be more elastic while if sales are higher, elasticity will be more inelastic. Price Elastic Unitary elastic 40 35 H G F 30 25 20 Demand 15 10 Inelastic E D C B Price Elastic Unitary elastic 40 H 35 30 F Inelastic E 25 D 20 Demand C 15 B 10 5 A Quantity 0 10 20 30 40 50 60 70 80 At point H on the above demand curve P=35 and Q=10. At point G on the demand curve P-30 and Q-20. To calculate the own price elasticity when moving from point H to point G, first calculate percentage change in price and quantity: percentage change in price = (35-30)/35 = .1429 (after rounding) = 14.29% percentage change in quantity = (10-20)/10=-10/10=-1=-100% elasticity=-100/14.29 = -7.0 (after rounding) Note that percentage changes are normally calculated using the starting price and quantity in the denominator. So, moving from point H to G, use the values at point H in the denominator. Question At point C: P=10 and Q=60 At point B: P=5 and Q=70 Please calculate the own-price elasticity when moving from point C to point B. In your answer please don't forget to include the negative sign!
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Answer Ownprice elasticity measures the responsiveness of quantity demanded of a product to a change ... View the full answer
Related Book For
The Economics Of The Environment
ISBN: 9780321321664
1st Edition
Authors: Peter Berck, Gloria Helfand
Posted Date:
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