Help for Questions for Critical Thinking 2 Essay

“The Cross-price elasticity of demand measures the rate of response of quantity demanded of one good, due to a price change of another good” (Economics.about.com,

3. The price elasticity of demand increases with the length of the period considered simply because ( )

You are an economist advising Holden Australia about increasing their total revenue. How would knowledge of elasticity help you to make the correct decision?

b. EXPLAIN how the total revenue test can be used to determine if a demand curve is elastic or inelastic. Use two graphs with numerical examples in your response. ( ____/5)

Question 31 In Bovania, cattle compose 48% of the consumer price index (CPI), housing composes 32%, and entertainment accounts for the remaining 20%. If, in a certain year, the price of cattle rises by 30% and the price of housing rises by 25%, then:

Rate each of the following statements as TRUE or FALSE. Justify your answer with an example or explanation to prove and illustrate your understanding. DO NOT OMIT THIS PART OF THE TEST. True/False answers can be guessed. But when you defend your answer by example or explanation, you demonstrate not only your memory and understanding but also that you can apply what you have learned. The first question is answered for you.

Using the regression results and the other computations from Assignment 1, determine the market structure in which the low-calorie frozen, microwavable food company operates.

Formulate a reason why the elasticity of demand is an important consideration when analyzing the impact of a shift in supply and why the elasticity of supply is an important consideration when analyzing the impact of a shift in demand. Include at least one (1) example in each scenario.

2. The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to
$5 per ton. The price elasticity of supply for peanuts over this price range is

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.

However, the company expects that its sales will grow 25 percent annually for the next five years. As illustrated in Table 1 the demand after 5 years will be approx.

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

Elasticity of demand helps the sales manager in fixing the price of his product, deciding the sales, pricing policies and optimal price for their products. The evaluation of this measure is a useful tool for firms in making decisions about pricing and production which will determine the total

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.

* Calculation Elasticity of Adding Happy Meal (Q2-Q1/Q1) Q1 - 20 Q2 - 23 total quantity demand increase total 15%. (P2-P1/P1) P1 - $6 P2 - $3 total price decreased by 5%. Divide percent change in quantity by price 15% divided by 5% = 3% elasticity.