Explore BrainMass
Share

Elasticy of Demand

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

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.

© BrainMass Inc. brainmass.com October 25, 2018, 10:35 am ad1c9bdddf
https://brainmass.com/economics/elasticity/elasticy-demand-619115

Attachments

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 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.

$2.19
See Also This Related BrainMass Solution

Questions

1. Do you think the overall level of R&D would increase or decrease over the next 20 to 30 years if the lengths of new patents were extended from 20 years to, say "forever"? What if the duration was reduced from 20 years, to say, 3 years? Which situation would create more monopoly power in the market?

2. How does monopolistic competition differ from a) pure competition; b) pure monopoly; c) oligopoly? Explain fully what product differentiation entails.

3. Which following antipollution programs should be undertaken by the government? Explain your answer?

The following table shows the total costs and total benefits in billions for four different antipollution programs of increasing scope:

Program Total Cost (in Billions) Total Benefit (in Billions)

A------------------------ $3 --------------------------------------- $7

B------------------------- 7 --------------------------------------- 12

C--------------------------12 --------------------------------------- 16

D---------------------------18 --------------------------------------- 19

4. Distinguish between fixed and variable costs in the short run.

Classify the following as fixed or variable costs:

a. Advertising expenditures

b. Fuel

c. Raw material cost

d. Real estate taxes

5. What effect would a rule stating that university students must live in university dormitories have on the price elasticity of demand for dormitory space? What impact might this in turn have on room rates?

View Full Posting Details