Term Paper: Microeconomics

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Microeconomics

The following is the complete elasticity chart. There were a couple of blanks where the denominator was zero that did not yield a usable result:

Price

Demand

Total Revenue

% Price

% Quant

Elasticity

#DIV/0!

#DIV/0!

Exercise

1a) If the initial price is $400, then demand is 10000 - (400)(10) = 6000. If the price is $500, then the demand is 10000 -- (500)(10) = 5000. The elasticity between these two prices is as follows:

% change in demand / % change in price

The change in demand is (4000-5000)/(5000) = -20%

The change in price is (500-400)/400 = 25%

The elasticity between $400 and $500 therefore is -20/25 = -0.8

The concept is elasticity reflects the degree to which the demand for a good is affected by the price of a good. To calculate elasticity, you need a change in price and a change in demand. When the price changes, elasticity tells us how much demand for that good is expected to change. In this case, every additional dollar is price will result… [END OF PREVIEW]

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