University of the People ECONS 1580 (Introduction to Economics) Written Assignment Unit 2 Demand and Supply; Elasticity. Suppose you are the manager of a restaurant that serves an average of 400 meals per day at an average price per meal of $20. On the basis of a survey, you have determined that reducing the price of an average meal to $18 would increase the quantity demanded to 450 per day. Compute the price elasticity of demand between these two points. eD = % change in quantity demanded / % change in price (Rittenberg, and Tregarthen, 2009). Where: Initial price = $20 Quantity of meals demanded daily at $20: 400 meals Price after review: $18 Quantity of meals demanded daily at $18: 450 meals Average of the quantity demanded = (400 …show more content…
This confirms that with elastic demand, lowering prices leads to a greater percentage increase in quantity, resulting in higher total revenue. Do you expect total revenues to rise or fall? Explain the adage of the adage. With the price elasticity of demand calculated to be -1.118, which indicates elastic demand, I would expect total revenues to rise if the price is reduced from $20 to $18 per meal. The reason is that with elastic demand (PED > 1 in absolute value), a decrease in price will lead to a greater percentage increase in quantity demanded (Rittenberg, and Tregarthen 2009). The percentage increase in quantity (11.765%) is larger than the percentage decrease in price (-10.526%), …show more content…
Do these totals confirm your answers in (b) and (d) above? Total revenue for each meal = price per unit x number of units sold (Rittenberg, and Tregarthen, 2009). Total revenue when sold at $20 = $20 x 400 = $8,000 Total revenue when sold at $18 = $18 x 450 = $8,100 Total revenue when sold at $16 = $16 x 500 = $8,000 Yes, the totals are confirmed in (b) and (d). Reducing the price from $20 to $18 per meal would boost the total revenue from $8,000 to $8,100 daily as the demand increased from 400 to 450 meals with the decrease in price. Further, reducing the price from $18 to sell 450 meals daily to $16 per meal to sell 500 meals would cause a decline in the total revenue from $8,100 to $8,000
What is Elasticity? The degree to which a demand or supply curve reacts to a change in price is the curve's elasticity. Generally in business or in economics, the elasticity is referred as degree to which consumers, individuals or producers change their demand or amount supplied in response to price or income changes. Variety of Demand Curves: Elastic Demand: Quantity demanded responds substantially to the changes in the price. (Elasticity > 1) Inelastic Demand: Quantity
Elasticity is a measure of how one variable changes in response to another. Elasticity of demand or supply is the degree of responsiveness of demand or supply respectively to changes in price. Therefore, price elasticity of demand is the percentage change in quantity demanded of a good/service divided by the percentage change in price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. If a slight change in price causes a big change
1. What is the price elasticity of demand? How is the price elasticity of demand calculated? The price elasticity of demand as I understand it is how much demand for an item will change with a given change in the price of an item. To be more precise it is the percent change in demand per unit of time divided by the percent change in price. (Khan, "Price elasticity of demand") While most examples I could find of price elasticity of demand were linear, I do not think they would truly be that way
advantage gained by acquiring or consuming an additional unit, one more dollar, one more hour. b) What marginal costs are Marginal costs are the lost satisfaction, lost profit, the price paid, if you acquire or consume one more hour, one more unit, or one more dollar. c) the marginal benefits = marginal costs rule of economic decision making. The fundamental rules of economic decision making is always acquiring or consuming one more unit, one more hour or dollar if and only if the marginal benefit
The Concept of Price of Elasticity of Demand Businesses know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good idea of what part of a demand curve looks like if it is to make good decisions. If Pepsi Coca raises its prices by ten percent, what will happen to its revenues? The answer depends on how consumers will respond. Will they cut back purchases a little or a lot? This question of how responsive consumers
Price Elasticty of Demand: Coca Cola Company Price Elasticity of demand measures the change in the quantity demanded in response to a change in market price of the commodity. The same is measured by following formula: Price Elasticity of Demand= % Change in Quantity Demanded/ % Change in Price In context of Coca Cola company, the price elasticity of demand can be described as change in quantity demanded of Coca Cola when the company changes the price of the soft drink at which it is offered to
Wafers with materials that shall improve performance of the panel. The U.S. government intends to increase the global demand for solar energy hoping to increase U.S. market share for solar panels. However, many people are still doubtful of the effective of solar energy as an alternative source of energy whether at present or in the future. Companies intend to charge high prices for products that are using new technology to manufacture affordable solar panels and recover the cost of investment in
Question 2 The concept of the elasticity is to measure of the responsiveness of the demand and supply of a goods and services to whether the increase or decrease in the price. It is also is a measure of how much the buyers and sellers respond to change in market conditions. Conceptualize of elasticity is to see the response of supply and demand to other economic changes as the elasticity of supply and demand. The elasticity very important because it is help companies to maximize their profit and
benchmark as it characterized by:- • A large number of Small Firms. • The product sold by each firm in the market is similar. • Whereas Buyers and sellers have no entry and exit barriers . • They also have perfect knowledge of prices and technology. This competition will not observed in real world but still its primary function is to provide a benchmark that can be used to measure the real world market structures. For example Horse betting which is also quite a close approximation
demanded is 820 when the price is $40. At $38, Q = 840 – 0.50(38) = 821.The quantity demanded is 821 when the price is $38. According to the market demand equation, a $2 decrease in price would cause the quantity of jeans sold to increase by 1. Therefore, consumer expenditure rises with the decrease in price. b. Elasticity = % Δ Quantity ÷ % Δ Price = (820-821)*100 ÷ (40-38)*100 = -100 ÷ 200 = -0.5. The elasticity, in absolute terms, is 0.5 making it a relative inelasticity of demand. Since it is inelastic
Demand and Supply In the economic world, have you ever thought of how demand estimation can be calculated and interpreted as it relates to a regression equation? Well, let me start by defining what demand estimation mean. Demand estimation is a process that involves coming up with an estimate of the amount of demand for a product or service within a particular period of time (Arthur, 2016). For the month of April, having the privilege to work for a maker of a leading brand of low-calorie, frozen
1993) (e.g the product price and its demand quantity). This report will analyzes the product ‘Supa-clean’, a new cleaning agent in Cleano-max PLC, though two model: a demand function and a multivariate demand function. After analysing the estimator, the weakness and the room of improvement of this statistics tool will be discussed. Ⅱ Constant-price elasticity demand estimation ⅰ.The tables below demonstrate the calculation of the key values about the estimation of the demand function for Supa-clean
Classification of Demands Elasticity of demand is an important variation on concept of Law of Demand. Demand can be classified as perfectly elastic, elastic, inelastic, unitary and perfectly inelastic. An elastic demand is one in which the change in quantity demanded due to a change in price is large. An inelastic demand is one in which the change in quantity demanded due to a change in price is small. An unitary demand is when quantity changes at the same rate as price. 1. Perfectly elastic demand Perfectly
Elasticity of Labour Demand Labour is a derived demand realised by the demand for the product that the labour will be producing. The theory of ‘labour demand’ explains the behaviour of the firm with the key principle being to achieve the optimal amounts of labour employers will want to utilise at different wage levels. We must make several assumptions when describing how the long run labour demand is derived. Firstly we must assume that firms are profit maximisers and therefore will attempt always
: Demand Estimation A. Market Characteristics & Demand estimation The price, quantity data provided in the data set is a reasonable approximation for the demand estimation of the product. However we are assuming that the other depending variables like advertising, substitutes are not affecting the demand schedule. Market structure is monopolistic in which many competing producers/retailers sell products/services which are differentiated from each other. In monopolistic competition, firms behave