Analysis of Demand Elasticity by ClassOf1

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Sub: Economics                                                                         Topic: Micro Economcis

Question:

Analysis of Demand Elasticity
Demand elasticity and total revenue.




a. You are given the demand curve in the diagram above, for which several points are contained in the
table below. Its equation can be written Q = 12 – P.


Note that ΔQ/ ΔP = -1.


Calculate the arc elasticties for the segments between the points, the point elasticties, and the total
revenue.



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 *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
                              submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                            Topic: Micro Economcis
Draw in the total revenue curve on the diagram above, and either the elasticties along the demand
curve (note separate scale).


For the elasticties use ΔQ /ΔP times P/Q. (As discussed in the Appendix, you may express elasticties as
either positive numbers as in the e=text or negative numbers as in the Appendix.)

P         Q       Arc Point         TR

          1
$11
          3
9
          5
7
          7
5
          9
3
          11
1


b. What is the relationship between total revenue and elasticity?


c. Assume that the demand curve shifts to the right with two more units sold at every price. Calculate
two or three elasticties to illustrate the general proportion that the new demand curve is less elastic
than the old at each price.




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    *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
                                 submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                                  Topic: Micro Economcis

Solution:

a. The demand curve is Q= 12-P

P      Q     Arc     Point                           TR

11 1         -
                          -       11                 11
9      3     -5      -3                              27

7      5     -2      -1.4                            35

5      7     -1           -       0.71               35
3      9     -0.5         -       0.33               27

1      11 -0.2                -   0.09               11




                                  www.classof1.com/homework-help/economics
    *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
                                       submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                         Topic: Micro Economcis

                          Total revenue curve
40

35

30

25

20
                                                                     Total revenue curve

15

10

 5

 0
      0               5                10               15



     b. As elasticity is going down the total revenue is increasing. There is an inverse relation between
     Total revenue and elasticity.


     c. As the demand curve shifts to the right, more amounts will be demanded at the same price.




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 *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
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