A. Assume that a product has an elastic demand. Explain what will occur to the firm’s total revenue if the price of the product is increased.
B. List and explain three (3) factors that could impact price elasticity of demand for a product.
C. What is income elasticity? How is it used by economists?
D. What is cross elasticity of demand? How is it used by economists?
Answers
Answer:
a) Change in the market What happens to total revenue?
Ped is inelastic (<1) and a firm raises its price. Total revenue increases
Ped is elastic (>1) and a firm lowers its price. Total revenue increases
Ped is elastic (>1) and a firm raises price Total revenue decreases
b) Key Takeaways. Many factors determine the demand elasticity for a product, including price levels, the type of product or service, income levels, and the availability of any potential substitutes. High-priced products often are highly elastic because, if prices fall, consumers are likely to buy at a lower price.
c) Income elasticity of demand is an economic measure of how responsive the quantity demand for a good or service is to a change in income. The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.
d) The cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demanded of one good when the price for another good changes.
Explanation:
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