Question

Extensions of Demand and Supply Analysis

1. Graph the accompanying demand data, and then use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. What can you conclude about the relationship between the slope of a curve and its elasticity? Explain in a
   nontechnical way why demand is elastic in the northwest segment of the demand curve and inelastic in the southeast segment.

2. Calculate total-revenue data from the demand schedule in question 2. Graph total revenue below your demand curve. Generalize about the relationship between price elasticity and total revenue.

3. How would the following changes in price affect total revenue? That is, would total revenue increase, decline, or remain unchanged?

1. Price falls and demand is inelastic.
2. Price rises and demand is elastic.
3. Price rises and supply is elastic.
4. Price rises and supply is inelastic.
5. Price rises and demand is inelastic.
6. Price falls and demand is elastic.
7. Price falls and demand is of unit elasticity.

4. Suppose the cross elasticity of demand for products A and B is +3.6 and for products C and D is -5.4. What can you conclude about how products A and B are related? Products C and D?

5. What is the formula for measuring the price elasticity of supply? Suppose the price of apple goes up from $20 to $22 a box. In direct response, Goldsboro Farm supplies 1200 boxes of apples instead of 1000 boxes. Compute the coefficient of price elasticity (midpoint approach) for Goldsboro’s supply/ Is its supply elastic, or is it inelastic?

Please can you specify for me which information you need?

Answer 1

1. Price falls and demand is inelastic. When demand is inelastic, quantity demanded doesn't change. In such case when price falls, then total revenue will decline.
2. Price rises and demand is elastic. If Ed>1, then total revenue declines; but if Ed<1, then total revenue will increase
3. Price rises and supply is elastic. Supply does not make any direct impact on Ed or total revenue from consumer's demand point of view.
4. Price rises and supply is inelastic. Here again, supply does not make any direct impact on Ed or total revenue from consumer's demand point of view.
5. Price rises and demand is inelastic. When demand is inelastic, quantity demanded doesn't change. In such case when price rises, then total revenue will increase.
6. Price falls and demand is elastic. If Ed>1, then total revenue increases; but if Ed<1, then total revenue will decline
7. Price falls and demand is of unit elasticity. When Ed = 1, the total revenue remains unchanged whether the price increases or declines.