Price Elasticity Of Demand Essay

552 Words2 Pages
bulb-icon

Recommended: Market rivalry

Answer the following three questions to the best of your ability.
1. Mathematical Exercise: Consider the following demand curve for apples.

2. Price (in dollars) 3. Quantity (in Bushels)
4. 10 5. 1
6. 9 7. 2
8. 8 9. 3
10. 7 11. 4
12. 6 13. 5
14. 5 15. 6
16. 4 17. 7

a) Find the price elasticity of demand between the prices $8 and $9. Is the demand curve elastic at this point? If so, why? If not, why not? What happens to revenue if the price falls from $10 to $9? Why?

= The price elasticity of demand between the price of 8 and 9 is 2.7, so this means the demand curve is elastic. Since the price elasticity of demand is greater than 1, the slope of the demand curve will be horizontal and consumers will not be fond of the price change …show more content…

= When the price changes from 5 to 4 the price elasticity of demand is .8, meaning the demand curve is inelastic. Since the price elasticity of demand is less than 1, then the slope of the demand curve will be vertical. Consumers are less likely to be bothered by the price change and will continue to buy the product.

Descriptive Exercise: Consider the following pairs of goods. Discuss which of them has a higher (in absolute value) elasticity and why.

a) Oil in the short run versus oil in the long run. = Oil in the long run has a higher absolute value in elasticity than oil in the short run since oil in the long run is more expensive than oil in the short run

b) Food (as a whole product) versus vacations. = Vacations have a higher absolute value in elasticity than food since vacations are luxuries. People are willing to give up vacations for food in order to survive

c) Harry Potter novels versus other fantasy novels. = Fantasy novels have a higher absolute value in elasticity than Harry Potter novels since Harry Potter has been around for ages and consumers are willing to pay amount for the other

Show More
Related

  • Mcguigan, 2014 Price Elasticity And Macroeconomics: Price Elasticity

    1188 Words  | 3 Pages

    Additionally, the equilibrium price, the quantity can be seen on the graph above indicated at the point where the supply and demand curve meets.

    Read More

  • Economists Use Real GDP Per Capita To Coasure Economic Growth

    1152 Words  | 3 Pages

    5. (Scenario: Growth Rates) Look at the scenario Growth Rates. According to the rule of

    Read More

  • Eco/365 Macroeconomics: Supply And Demand By Eco 365

    726 Words  | 2 Pages

    The price elasticity of demand is a measurement that illustrates the responsiveness to changes in price of the demand. For example, it is specifically related to the simulation in regards to shifting the price up and measuring how much the demand falls. It is a percentage change in quantity. The presence of substitute goods, such as detached housing, has the effect of increasing the price elasticity of the demand. Housing is a necessity, which helps to hone down the elasticity. The revenue is maximized when the elasticity is equal to one.

    Read More

  • Price Gouging Essay

    722 Words  | 2 Pages

    Price gouging is increasing the price of a product during crisis or disaster. The price is increased due to temporal increase in demand while supply remains constrained. In many jurisdictions, price gauging is widely considered as immoral and is illegal. However, from a market point of view, price gouging is a correct outcome of an efficient market.

    Read More

  • Toronto Blue Jays

    487 Words  | 1 Pages

    Inelastic demand means that an increase or decrease in price will not significantly affect demand for the product. In spite of the rising prices for the Blue Jays tickets, fans were expected to turn out in large numbers. This inelastic demand for the tickets can be attributed in large part of the fact that their teams plays so well in 1998, and another factor is that the Blue Jays fan could never stay away from their team. Another inelastic demand for the Blue Jays tickets is that there is no other locally substitute team.

    Read More

  • Demand Analysis: Price Elasticty

    1719 Words  | 4 Pages

    Commercial firms use Price Elasticity to manage pricing and production decisions, especially in industries where the growth in sales and revenues are the primary measure of a firm’s success. Knowledge of the Price Elasticity for a product or service enables managers to determine the pricing strategy required to get the sales results desired. For example, a firm with a product with a relatively high elasticity would know that a large sales increase can be created with a small price decrease. Conversely, a firm with an inelastic product knows that changes in pricing would have minimal effect on sales.

    Read More

  • The Effect of pH on Enzyme Activity

    602 Words  | 2 Pages

    0.000 7 63 106 55 74.7 1.245 9 70 135 90 98.3 1.638 11 85 135 70 96.8 1.613 [ IMAGE ] [ IMAGE ] Conclusion = = = =

    Read More

  • Coca Cola Price Elasticity Of Demand Analysis

    1580 Words  | 4 Pages

    When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price

    Read More

  • Economics: Demand and Quantity Demanded

    1410 Words  | 3 Pages

    The law of demand states that if everything remains constant (ceteris paribus) when the price is high the lower the quantity demanded. A demand curve displays quantity demanded as the independent variable (the x-axis) and the price as the dependent variable (the y-axis). http://www.netmba.com/econ/micro/demand/curve/

    Read More

  • Elasticity

    966 Words  | 2 Pages

    Elasticity is one of the most important theories in economics and it is a measure of responsiveness (Baker, 2006)i. 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. The degree to which a demand or supply curve reacts to a change in price is the curve's elasticity (Lingham, 2009)iii. Elasticity varies among products because some products may be more essential to the consumer.

    Read More

  • Four Factors Affect The Demand Of Cars

    1000 Words  | 2 Pages

    Because when the price of cars is so high, people will buy less cars. However, when the price of cars is low, people will buy more cars than before. According to the diagram,when the price of cars is 30,000, the quantity of cars are five. In addition, when the price of cars is 20,000, the quantity od cars are ten. So we can know clearly that the demand curve is sloping down.

    Read More

  • Toyota Products, Services, and Prices

    1088 Words  | 3 Pages

    One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.

    Read More

  • Market Price

    1137 Words  | 3 Pages

    Figure I I .4 illustrates the effects of an increase in demand. OD is the original demand curve so that the equilibrium price is P and quantity Q is demanded and supplied.

    Read More

  • Income And Income Effect Essay

    2800 Words  | 6 Pages

    The diagram shows the income and substitution effect of a consumer for good 1 and good 2, that is the substitution effect for bananas and mangoes .Initially, the consumer is faced with a situation where they choose to consume a combination of both goods 1 and 2, forming a point of equilibrium at point A. at this point, the old budget line of the consumer is tangent to the indifference curve that is located at the outer side (the higher indifference curve). Here, the consumer makes a choice of the amount of good 1 and the amount of good 2 to consume so as to attain the highest level of utility. In this case, the consumer makes a choice to consume 11 units of the good 1 and 8 units of the good 2, forming the equilibrium level at point A. A price change occurs for the good 1,say the price changes from 50 to 70. This is a price increase of 20. following the increase in the price for bananas, good 1, the good becomes more expensive. This brings about a change in the consumption of good 1 by the consumer. Thus the consumption level of the consumer moves along to the point E. this becomes the new equilibrium level following the price increase of 20. At the point E, the new budget line of the consumer is tangent to the indifference curve that is on the lower side in the diagram. The increase of the price of bananas leads to a decline in the amount that is consumed. Hence, the consumption level falls from 11 units to 4 units. On

    Read More

  • Real Estate Industry

    1820 Words  | 4 Pages

    In the short-run the price elasticity of demand is high, however, in the long run the elasticity is not very high (Pascal 1967).

    Read More

More about Price Elasticity Of Demand Essay

Open Document