Question

Ch. 6: Simple Pricing

a. define the Law of Demand?

b. Explain the distinguish between a change in demand and a change in quantity demanded?

c. create a demand curve from a simple demand schedule in Table 6.2?

d. determine the calculated values in a table such as Table 6.4?

e. Can you apply your understanding of Chapter 4’s marginal analysis to pricing decisions in a price-making (versus price-taking) firm?

f. Can you explain in words what Own Price Elasticity, Cross-Price Elasticity, and Income Elasticity mean?

g. Given specific values for Own-Price Elasticity of Demand, can you determine whether demand for the good is elastic, inelastic, or unit elastic?

h. Given specific values for Cross-Price Elasticity, can you determine whether the two goods are substitutes or complements?

i. Given specific values for Income Elasticity, can you determine whether the good is a normal or inferior good?

j. Can you calculate each of these elasticities, such as in the homework?

k. identify relatively elastic and inelastic demand curves?

l. list factors that may affect demand elasticity?

m. indicate whether total revenue will increase or decrease as a result of a price change, depending on the demand elasticity?

Testbook use for this assignment is ;

Managerial Economics

Froeb Chapters

Answer 1

a) Other things remaing the same, the inverse relationship between price of commodity and its quantity demanded is known as law of demand. It shows negative relationship between price and its quantity demanded.

b) Change in demand - when demand of a commodity changes due to change in factors other than price like change in the income of the consumer, change in taste and preference, change in the price of related goods then it causes change in demand. It causes shift of demand curve either leftward or rightward.

Change in quantity demanded - When demand of a commodity changes due to change in the price of commodity itself then it causes change in quantity demanded. It causes movement of the demand curve either upward or downward.

f) Own price elasticity of demand - The responsiveness of % change in quantity demanded of a commodity due to % change in the price of commodity itself.

Cross price Ed - The responsives of % change in the quantity demanded of good Y due to % change in the price of good X.

Income Ed - The responsiveness of % change in quantity demanded of a good when income of consumer changes.