Supply and Demand and Budget Line

Elasticity of demand is a measure of responsiveness to a price change of a good or service. When demand is elastic, the percentage of a price change of a product will result in a larger percentage of quantity demanded (McConnell, p 77). It basically means reducing the price of a good service will result in a greater quantity demanded and an increase in revenue for the seller. When demand is inelastic, a change in price will result in a reduction of quantity demanded, which will then lead to a revenue decrease (McConnell, p 77). To demonstrate elastic and inelastic demand results, Company A sells 100 pens at $1.00 a piece each day, making their revenue $100.00. Company A

ECON111 MICROECONOMIC PRINCIPLES S1 2017 PART IV (24 marks) Australia is considered to have a comparative advantage in producing beef, and Japan is considered to have a comparative advantage in producing cars.

According to the text, “price elasticity is the percentage change in quantity divided by the percentage change in price. (Colander, 2010)” Basically, what this aims to define is the responsiveness of their consumers to price change. This calculation

Since Blinkie’s Donut Emporium offers several different products, we decided to calculate the price elasticity of demand for their main product sold; donuts. Elasticity is determined by the percentage change in quantity demanded divided by the percent of change in the product price. The initial quantity demanded, being 5,000 sales a month later turned into 4,500 sales a month in response to the price change from $1 to $1.50. A $.50 cent increase in price led to a decrease in total quantity of donuts sold by 500. The percentage of change is a 50% increase in price along with a percent of change in quantity of -10%. Elasticity then becomes -10/50 giving us an elasticity of -.2, but since elasticity is always positive, the negative sign is disregarded. The number .2 elasticity is very close to being unitary elastic but still inelastic, meaning that the demand changes according to price at an almost equal rate. Therefore, we recommend that Blinkie’s Donut Emporium does not raise or lower the price to enhance sales, but keeps the price the same. They can increase the price by a few cents, but we believe leaving the price as is can avoid the loss of regular customers from a practical standpoint.

(b) If they want sales to increase by 5%, given the income increase will increase sales by 9%, they should increase the price enough so that the percentage change in Q due to the price increase is -4%. Recall , and elasticity is 1.2, we then have . Solving for the percentage change in price we find

Age segments are most frequently studied. Studies from around the world reports the following median values for age-specific cigarette price elasticity (Søgaard)

Elasticity of demand represented as “Ed” is defined as a “measure of the response of a consumer to a change in price on the quantity demanded of a good” (McConnell, 2012). Determinants for elasticity of demand would include the substitutability of a good, proportion of a consumer 's income spent on a good, the nature of the necessity of a good and the time a purchase is under consideration by the consumer. Furthermore, elasticity of demand is calculated with this formula:

B) Maria’s price elasticity of clothing demand is 1 because every percentage point increase in the price of clothing would lead her to reduce her quantity purchased by the same percentage.

Unit Elastic Demand The unit elastic demand is a demand relationship in which the percentage change in quantity demanded is the same as the percentage in change of the price.

Price Elasticity of Demand is the responsiveness of a change in the quantity demanded of a certain good to a change in its price. The formula for Price Elasticity of Demand is the percentage change in the quantity demanded of a certain good divided by the percentage change in the price of that certain good (Alain Anderton, p.55). A specific tax is a tax that’s amount levied does not change with the value of a good but with the amount or volume of a good purchased (Alain Anderton, p74). Cigarettes are demerit goods which yield negative externalities. Demerit goods are goods that are overprovided by the price

Due to comparative advantage country A produces X = 500 units While country B produces Y = 1600 units

change in quantity demanded will equal 100%. In this case, the price elasticity of demand will be 100%/–

    C. what benefit are to be gained from counties producing according to the concept of comparative advantage? What it a country is absolutely more productive in all good.

A) it increases competition in the domestic market of each country at the expense of external suppliers and, accordingly, limits the monopoly of national producers;

Recall that the elasticity of demand, which measures the responsiveness of demand to price, is given by