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.

product price	Quantitiy Demanded
$5	1
4	2
3	3
2	4
1	5

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.

Answer 1

Solution:

Ques 1

Relationship between price elasticity and total revenue

When the price increases and total revenue also increases the demand is more elastic. When there is positive relation between price and total revenue.

When price increases but total revenue decreases the demand is less elastic. When there is negetive relation between price and total revenue.

And when there is no change in total revenue due to price increase or decrease then elasticity is 1.

Solution related to Ques 1

Price elasticity is % change in Quantity divided by % change in Price

The demand is elastic in northwest segment because the % change in Quantity is more as compared to % change in price. In this segment the %change in price is low , which keep on increases when we move downward. So we get more value of Ed

The demand is inelastic in southeast segment because the % change in Quantity is less as compared to % change in price. Here the % change in price is more, so we get less value od Ed.