ECON 1B03 Lecture 5: Week 5 - p8

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periwinkleskunk665

17 Oct 2018

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ECON 1B03 Full Course Notes

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Since dq is the slope of the demand curve, that"s why we can see elasticity by the steepness (slope) of the curve. With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. A firm would lose a few sales but make up for it by getting a higher price for the sales it does make. The gain to tr from the p increase will outweigh the loss to tr from a decrease in q. Tr will increase if p increase if demand is inelastic. So, if a firm wants to increase tr and demand for its good is inelastic, it should increase p. With an elastic demand curve, a decrease in the price leads to an increase in quantity demanded that is proportionately larger. A firm would gain so many sales that even with a lower price, it ends up with greater total revenue.

Related Questions

a. When demand is inelastic, an increase in price causes quantity demanded to ____ and TR to ____.

b. When demand is elastic, a decrease in price causes quantity demanded to ____ and TR to ____.

c. When demand is unitary elastic, an increase in price causes quantity demanded to ___ and TR to ____.

d. If the price falls and total revenue stays the same, demand must be _____.

e. If price rises and total revenue falls, demand must be _____.

ambertermite969

From the scenario for Katrinaâs Candies, examine the procedure Herb will use to estimate the "demand model" for this product and comment on the expected price elasticity, income elasticity, and cross price elasticity of demand. That is, do you expect demand to be price elastic or inelastic? Will the income elasticity suggest Katrina Candies is a luxury or a necessary good? And, is there likely to be a strong cross price elasticity with the other products that Herb included in his demand model? Explain your answers. What can you determine about consumer demand for a product whose estimated demand elasticities are as follows: Price Elasticity of demand is -0.85 Income Elasticity of demand is 2.5 Cross Price Elasticity of demand with this product and your product is -2 I would like you to think about this simple formula for predicting the change in total revenue when there is a given percentage change in price. Using the example above, if ED (price elasticity of demand) is -.85, then a 10% increase in price will cause the quantity demanded to fall by 8.5%, (-8.5% / 10% = -.85). The Formula for Predicting % Changes in Total Revenue is: %ÎTR = %ÎQ + %ÎP where TR = Total Revenue, Q is Quantity Demanded and P = price. Using this formula, what would be the % Î in TR if ED is -.85 and the %ÎP is 10%?