Question

In: Economics

For each of the following cases use linear demand curves and graph and explain how total...

For each of the following cases use linear demand curves and graph and explain how total revenue changes. Label (q1, p1) and (q2, p2). Label, note and explain the opposing effects on revenue due to the changes in price and quantity.

A. Elasticity >1, price increases

B. Elasticity >1, price decreases

C. Elasticity <1, price increases

D. Elasticity <1, price decreases

Solutions

Expert Solution

A. Elasticity > 1 . This implies that the demand is elastic. So, a percentage change in quantity demanded is more than the percentage change in price. Now, we can see in the figure below that When P=$2 , Q=40 units. And when P increases to $2.5 , Quantity decreases to 20 units. Earlier, TR= (2)(40)= $80 . And After increase in price , TR= (2.5)(20)= $50. This implies that when elasticity >1 and price increases , TR falls.

B. Elasticity >1. This implies that the demand is elastic. So, a percentage change in quantity demanded is more than the percentage change in price. Now, we can see in the figure below that When P=$2.5, Q=20 units. And when P decreases to $2, Quantity increases to 40 units. Earlier, TR= (2.5)(20)= $50 . And After decrease in price , TR= (2)(40)= $80. This implies that when elasticity >1 and price decreases , TR rises.

C. Elasticity <1 . This implies that the demand is inelastic. So, a percentage change in quantity demanded is less than the percentage change in price. Now, we can see in the figure below that When P=$2, Q=30 units. And when P increases to $5, Quantity decreases to 20 units. Earlier, TR= (2)(30)= $60 . And After increase in price , TR= (5)(20)= $100. This implies that when elasticity <1 and price increases , TR rises.

D. Elasticity <1 . This implies that the demand is inelastic. So, a percentage change in quantity demanded is less than the percentage change in price. Now, we can see in the figure below that When P=$5, Q=20 units. And when P decreases to $2, Quantity increases to 30 units. Earlier, TR= (5)(20)= $100 . And After decrease in price , TR= (2)(30)= $60. This implies that when elasticity <1 and price decreases , TR falls.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

In a large graph, draw linear supply and demand curves that obey the laws of demand...
In a large graph, draw linear supply and demand curves that obey the laws of demand and supply in a coordinate system. Label everything relevant. Show the equilibrium price and quantity, as well as consumer and producer surplus on the graph. How do you calculate total surplus if there are no externalities? Suppose the government levies a tax on the sellers of the good. In a new large graph, show (1) which curve shifts, (2) which way, and (3) derive...
Use the ATC, MC, MR, Demand Curves ONLY. Explain each graph. Illustrate graphically a monopolist at...
Use the ATC, MC, MR, Demand Curves ONLY. Explain each graph. Illustrate graphically a monopolist at a loss. (Label) Illustrate graphically a monopolistic competition at a profit.
In each of the following cases, draw the supply and demand curves for the market indicated....
In each of the following cases, draw the supply and demand curves for the market indicated. Your drawings need not be perfectly to scale. After that, please show how the event indicated would affect the supply and/or demand curves. Clearly indicate the new and old equilibrium prices and quantities. In one sentence please explain your reasoning. Market: Bicycles Event: Gasoline prices rise to $6.00 per gallon Market: Bicycles Event: Your university trustees vote to establish automobile parking fees of $1.00...
1.    In each of the following cases, draw the supply and demand curves for the market...
1.    In each of the following cases, draw the supply and demand curves for the market indicated. Your drawings need not be perfectly to scale. After that, please show how the event indicated would affect the supply and/or demand curves. Clearly indicate the new and old equilibrium prices and quantities. In one sentence please explain your reasoning. A) Market: Bicycles Event: Gasoline prices rise to $6.00 per gallon B) Market: Bicycles Event: Your university trustees vote to establish automobile parking...
Use supply and demand curves to illustrate how each of the following events would affect the...
Use supply and demand curves to illustrate how each of the following events would affect the price and quantity of snow shovels bought and sold: a. An increase in the price of snow blowers. b. An unseasonably warm winter. c. An increase in the average income level (assume snow shovels are an inferior good, and snow blowers are a normal good).
Use the following information to draw aggregate demand (AD) and aggregate supply (AS) curves on the following graph.
Use the following information to draw aggregate demand (AD) and aggregate supply (AS) curves on the following graph. a. What is the equilibrium price level? b. What curve would have shifted if a new equilibrium were to occur at an output level of 450 and a price level of $450?  AD shifts to the right  AD shifts to the left  AS shifts to the right  AS shifts to the left c. What curve would have shifted if a new equilibrium were to occur at an output level...
a. Draw the graph for the market demand curve for the 3 following demand curves: Individual...
a. Draw the graph for the market demand curve for the 3 following demand curves: Individual 1: q1=20−P/2 Individual 2: q2=5−P/2 Individual 3: q3=5−P b. Obtain the consumer surplus for individuals 1, 2, and 3 separately using their individual demand curves for P=$4 c. Add the three consumer surpluses. Then confirm that you get the same answer for CS using the market demand curve you have drawn in part a. d. Repeat the exercise but now for a price of...
Sketch example stress strain curves for the following material properties (2 curves on each graph): Graph...
Sketch example stress strain curves for the following material properties (2 curves on each graph): Graph 1: Brittle and Ductile Graph 2: strong and weak (relative) Graph 3: Non-linear and linear material
For the scenarios discussed below, use supply and demand curves and a graph to analyze what...
For the scenarios discussed below, use supply and demand curves and a graph to analyze what will happen to both price and quantity in equilibrium given the information available below 1.You are the CEO of Coca-cola. The FDA introduces a $2 per meal tax on fast-food (but not on drinks). Analyze the market for your products. It is the fast food sellers who are obliged to pay the tax to the state. 2. You are the CEO of Coca-cola. The...
For the scenarios discussed below, use supply and demand curves and a graph to analyze what...
For the scenarios discussed below, use supply and demand curves and a graph to analyze what will happen to both price and quantity in equilibrium given the information available below. Graphs MUST be half a page each. When it is impossible to pin down the direction of the effect, discuss what is more likely in your opinion and why. Make sure to differentiate between movements of curves and movements on curves. For example, you could say something like this: “the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT