Chapter 5 DEMAND ANALYSIS QUESTIONS & ANSWERS Q5.1 Q5.1 Is the economic demand for a product determined solely by its usefulness? ANSWER No‚ two basic conditions must be met before economic demand is created. First‚ there must be value associated with acquiring and using the good or service. For individuals‚ this value is in terms of utility‚ well being‚ or satisfaction through consumption. For firms‚ this value is measured in terms of the profit created through resource employment. Second‚ there
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1How much would the firm’s revenue change if it lowered price from $12 to $10? Is the demand elastic or inelastic in this range? | When P = $12‚ R = ($12)(1) = $12. When P = $10‚ R = ($10)(2) = $20. Thus‚ the price decrease results in an $8 increase in total revenue‚ so demand is elastic over this range of prices. How much would the firm’s revenue change if it lowered price from $4 to$2? IS the demand elastic or inelastic in this range? | When P = $4‚ R = ($4)(5) = $20. When P = $2‚ R
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percent‚ by how much does the quantity of household ( a) natural gas and ( b) electricity change in the short run and in the long run? ( Hint: Use the price- elasticity values in Table 4- 3.) In general‚ . Using the numbers we have Short-run Long-run Gas Electricity 11. [5 points] Suppose that the cross- price elasticity of demand between McIntosh and Golden Delicious apples is 0.8‚ between apples and apple juice is 0.5‚ between apples and cheese is 0.4‚ and between apples and beer is
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ECON111 Page 115 1. Define the price elasticity of demand and the income elasticity of demand Price elasticity of demand is a measure of how much quantity demanded of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Income elasticity of demand is a measure of how much quantity demanded of a good responds to a change in consumer’s income. It is calculated as the
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drinking more (Mintel‚ 2008). Factors that Affect their Demand Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. Each consumer has an individual demand for particular goods and services and the level of demand at each market price reflects the value that consumers place on a product and their expected satisfaction gained from purchase and consumption. Demand in economics must be effective which means that only when a
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step is to calculate elasticites. (See Figure 1 and Figure 3) The elasticity of demand for the average of all the values in the demand function turned out to be 0.037. This number represents extreme inelasticity‚ so a change in price causes small changes in the quantity of DVDs rented. This means that Stagelights can safely raise their prices and expect their quantity to have little effect. Stagelights needs to move its price elasticity to unitary‚ or one‚ to return the highest possible revenue. Currently
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Monsanto? One of the factors for Roundup’s success is because of the increasing popularity of conservation tillage. But as the conservation tillage is sensitive to the price of herbicides‚ the price of herbicides is very elastic. Therefore‚ the demand for herbicide will respond substantially to changes in the price. For Roundup‚ when its price was reduced by 9%‚ the sales volume was increased by 22%. 22% is much higher than 9%. As a result‚ the price of Roundup is very elastic and the cutting price
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Elasticity is a measure of the sensitivity of one thing‚ to another (Bannock‚ 2011‚ p.116). It could be divided into price‚ income and cross-price elasticity of demand and supply and they are known as PED‚ YED ‚XED and PES. They can be used to measure how the change in demand and supply of a product responds to the change in price‚ income and other commodities. Calculating price‚ income and crossprice elasticity can review the new cars market‚ it can be found that the demand and supply of new
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percent. Will total revenues increase or decrease as a result of this action? Use the concept of price elasticity to substantiate your answer. THE ANSWER DPENDS ON THE VALUE OF ELASTICITY of demand. If demand is elastic then revenues will fall‚ whereas if demand is inelastic then revenues will rise. This is explained by the relation: change in revenues/ change in price= Q( 1+elasticity). If demand is elastic then the expression becomes negative so that price rises causes revenues to fall. When dmand
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CHAPTER 6| Elasticity: The Responsiveness of Demand and Supply SOLUTIONS TO END-OF-CHAPTER EXERCISES Answers to Thinking Critically Questions 1. Even if the overall demand for gasoline is inelastic‚ a revenue increase for Joe’s Gas-and-Go will occur only if the percentage increase in price is greater than the percentage decrease in quantity demanded. If Joe’s price increase is too large and Joe has other competitors who do not raise their prices‚ then it is possible that the percentage
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