Purchase Solution

Elasticy of Demand

Not what you're looking for?

Hello,

I need assistance with 6 questions for an Economics assignment dealing with Elasticity. I have attached the material needed that has the questions and reading (if needed). I will be needing this assistance by Sunday, 3/13/16 @ 2 p.m. If you need anything additional from me, or are unable to assist me, please let me know. Thanks.

Solution Summary

The answer to this problem explains the concept of elasticity and six questions related to economics. The references related to the answer are also included.

Solution Preview

!.
The coffee shop knows that its elasticity of demand is 0.2. The elasticity of demand referred to here is price elasticity of demand. This is the relationship between price and quantity demanded. It shows the relationship between a change in the quantity demanded of a particular good and a change in its price. It shows price sensitivity. The elasticity of demand shows responsiveness of the quantity demand of a good or service to a change in its price, if other things are kept constant. Elasticity of demand is found by dividing the percent change in quantity demanded by the percent change in the price of a good. Elasticity = percent change in quantity / percent change in price. In case of local coffee shop Increasing the price by 20% means the quantity = 0.2 X 20%, which is equal to 4% decline in quantity. In simple words since the elasticity of the local coffee shop is low, the coffee shop should go in for the increase in the price by 20%. The increase in price by 20% will reduce the quantity sold by 4%. If 100 cups of coffee are sold in a day and the price is increased from \$1 to \$1.20, the number of cups sold will be 96. So the revenue earned by the coffee shop will be \$1.20 X 96 = \$115.20. The revenue of the coffee shop will increase from \$100 to \$115.20. The local coffee shop should increase its price.

2.
If the cigarette manufacturer knows that its elasticity of demand is 1.3, I will not recommend that it should increase its price by 20%. The elasticity of demand is higher than 1 so the demand is elastic and the cigarette maker should not increase its price by 20%. Elasticity = percent change in quantity / percent change in price. In case of cigarette maker Increasing the price by 20% means the quantity = 1.3 X 20%, which is equal to 26% decline in quantity. If 100 cigarettes are sold in a day and the price is ...

Solution provided by:
Education
• BSc , University of Calcutta
• MBA, Eastern Institute for Integrated Learning in Management
Recent Feedback
• "I read your comments, and thank you for this feedback. Do I need to find other studies that applied this methodology Ive used? That's where I'm stuck at."
• "Thank you kindly sir. "
• "Excellent and well explained. --Thank you kindly. "
• "Awesome notes. I appreciate you."
• "I have the follow-up project and I will assign that to you very soon. "

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.