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(Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of $1 per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve. 

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Raushan Raj
Raushan RajLv8
10 Dec 2020
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1. __________________ A measure of consumers’ sensitivity or responsiveness to changes in the price of a good or service.

2. ___________________ When the percentage change in price (in absolute value) is more than the percentage change in quantity demanded (in absolute value).

3. ___________________ When the percentage change in quantity demanded (in absolute value) is more than the percentage change in price (in absolute value).

4. ___________________ When the percentage change in quantity demanded (in absolute value) is just equal to the percentage change in price (in absolute value).

5. ___________________ Total amount paid to a producer for a good or service P * Q.

6. ___________________ The effect on total revenue of a change in price, holding quantity constant.

7. ___________________ The effect on total revenue of a change in quantity, holding price constant.

8. ___________________ An elasticity calculated over an interval of a demand curve or demand schedule.

9. ___________________ Elasticity at a specific price or point on a demand curve.

10. ___________________ A measure of how responsive quantity demanded is to a change in income, all other things constant.

11. ___________________ A measure showing how responsive the quantity demanded of one good is to changes in the price of another good, other factors constant.

12. ___________________ The additional revenue received by producing and selling one more unit of output.

13. ___________________ Units of output that could have been sold at a higher price had the firm not lowered its price to sell additional (marginal) units.

5. If a 2 percent increase in price results in an 8 percent reduction is quantity demanded, the elasticity of demand is equal to, a) O b) 4 c) 16 d) 0.25

The following table shows price elasticity of demand for several produce items. Apples price elasticity = | -1.05 | = 1.05 Strawberries price elasticity = | -0.50 | = 0.50 Lettuce price elasticity = | -0.15 | = 0.15 Tomatoes price elasticity = | -0.11 | = 0.11

Question 1: Elastic and Inelastic Demand

Which product above has the most price-elastic demand and would therefore show the greatest increase in quantity demanded if the price were lowered?

Question 2: Total Revenues to the Supplier

For which product(s) would a 1% drop in price cause a decrease is total revenues for the farmers who grow and sell it, if their revenues were not subsidized as the quantity demanded increases? List all of them.

Question 3: Calculating elasticity

Corn is presently $4.00 per bushel. If we reduce the price by 2%, to $3.92 per bushel, we observe that the quantity demanded increases by 1.3%. What is the price elasticity of demand for corn? (Convert the percentages to decimals before computing to avoid confusion interpreting the answer, and express the answer as an absolute value, that is, as a positive number.)

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