An Assignment On Demand Estimation

When there is a large increase in the price of a product in the short run it results in inelastic demand because there is little time to adjust to the increase and find an alternative product. Let’s say the consumer uses the local bus service to go to work. On the way to work one day he notices that the prices of transportation will double beginning tomorrow. In the short time he may be forced to continue paying the higher prices until he can find alternative transportation. As time passes, the consumer can make alternative choices such as carpooling, working from home, or riding a bike to work; therefore, the cost increase for the transportation would be elastic.

Student Answer: A. : (Q1 – Q0)/((Q1 + Q0)/2)÷ (P1 – P0)/((P1 + P0)/2) = (500-300)/((500+300)/2/(10-20)/((10+20)/2 = )200/400)/(10/15) = .5/.67 = .746. This demand is inelastic because the demand elasticity is less than 1. B. When price elasticity changes by 9% you will have a decline in price by 11.7 %. Take change in price (9%)*demand elasticity (1.3) = .117 = 11.7%. c. 35*180 = $6300.00 TR 20*300 = $6000.00 TR = $300.00 decline in TR if you drop the price from $35 to $20.

A. The concept of elasticity of demand has played a major role in managerial decision-making. It has greatly helped managers in consideration of whether lowering a price will lead to an increase in demand of a certain product, and if so, to what extent and whether profits would increase as a result of doing so. In this case the concept of demand becomes advantageous in that:

Price elasticity of demand refers to the difference in demand as related to price. According to Douglas (2012), “Price elasticity of demand is defined as the percentage change in quantity demanded divided by

There is absolutely no doubt that we are facing a serious economic downturn that is threatening the existence of many businesses here in the United States as well as abroad. Many companies much like Home Depot are formulating ideas on how to deal with price elasticity of demand or the lack there of (inelasticity). Price elasticity of demand refers to the measure of consumer response to the quantity of demand for products or services to price adjustments. The formula for price elasticity of demand is: (% change in quantity demanded)/ (% change in price), the latter is inelasticity in which is some the issues Home Depot is facing today. The supply and demand graph (See figure 4) indicates the price elasticity of demand for Home Depot: This is an example of a positive price elasticity of demand curve. Should the blue "S" supply line curve slightly to the right that would represent an inelastic supply and demand. The price elasticity graph (economagic.com) illustrates the predicament of many businesses today (University of Aberdeen, 2009).

1. When a firm measured price in dollars and quantity in kilograms, it estimated that the

Since price elasticity is less than 1, total revenue will fall if price falls. Moreover the cross price elasticity of the product is almost close to zero. So, if the firm will never lower its price to increase its market share. The cross price elasticity of the product is positive (0.005). Since the value is too low, the goods can be considered as almost neutral goods. But own price elasticity

| Yes, demand elastic is in the $6 - $10 price range or less than 1. Ed = 0.75 in the $3 - $6 range the range of demand would change by 20 percent if the price changed by 20 percent. If price fell from $15 - $10 TR would decrease.

* Analyze the determinants of the price elasticity of demand and determine if each of the following products  are elastic or inelastic:

To find Forrester’s elasticity, I began by calculating Forrester’s market share for all periods and observed that without the change in price Forrester’s market share was always 35% of the Industry demand, I also noticed that Forrester’s demand fluctuated at the same rate as the Industry before the price change, confirming a correlation.

Elasticity is a measure of the responsiveness of demand to changes in the price of a good or service. In the case of Steam Scot, when the price rises from 4 to 5, demand falls from 60,000 to 40,000 units. The original equilibrium market price of 4 pounds resulted in demand of 60,000 units and this generated revenue of 240,000 pounds. When the prices increased to 5 pounds the resulting demand is 40,000 units, and this generates total revenue of 200,000 pounds. When market price changes from 4 pounds to 5 pounds 40,000 pounds of revenue are lost in this indicates an elastic price elasticity of demand.

Price elasticity of demand enables business organizations to predict how their total revenue will be effected in the event they change the prices of their products. When a given good has inelastic price elasticity of demand i.e. Ed 1, then the percentage change in the quantity demanded is greater that the change in price. Thus, raising the prices of such commodities results to decline in the total revenue because the business may loss customers to their competitors. Nonetheless, reducing the prices of goods with elastic elasticity of demand increases the total

To solve the equation, you plug 3000 in for x and get p(price) = 120. Yes, the unit price of $120 may seem high but because production decreased by almost half and we kept revenue the same the increase in unit price was justified. A function for the elasticity of demand would have to follow the equation E(p) = -pf’(p)/f(p). The predetermined function for f(p) = 12000-75p and taking the derivative f’(p) = -75, these can be plugged into the elasticity demand function to get E(p) = 75p/12000-75p. Using the unit price of $120 for p elasticity of demand comes out to be 3. Since 3 is greater than 1 the unit elasticity at this price is elastic. Based on this finding increasing this price would make revenue less productive and so we should keep the price of the water bottles lower to be able to produce more; however, it would make sense to increase

If the demand for companies output is inelastic then the change in price will have a smaller effect on change of quantity. Let’s say company will cut the price for 10 percent. This will cause the increase in demands for 5

When price elasticity of demand is elastic, the coefficient will be greater than one. When a percent price change occurs quantity demanded responds strongly there will be a large change in quantities consumers purchase. There is price sensitive in this scenario. If price elasticity of demanded is inelastic the coefficient will be less than one. When a percent price change occurs quantity demanded does not respond strongly then there is a slight change in quantities consumers will purchase. There a weak price sensitive in this scenario. Lastly, if price elasticity of demanded is unit elastic the coefficient will be equal to one. Whenever there is a percent change in price there is an equally matched percent change in quantity demanded. This scenario is rare.