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# Price Elasticity of Demand of Goods and Services

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Need 2 questions by today friday 11/6/09 by midnight eastern standard time ohio time.

1. Describe and estimate the price elasticity of demand for a good or service of your company, or a company of interest to you. (Not your learning team good or service though!) ? Estimate the price elasticity of demand by guessing at the effect of a 10% price change on the sales level. Formulate how the assumed 10% price change and the change in sales level are the only two facts you need to estimate a price elasticity. ? Determine if the good or service tends to be elastic or inelastic, and the reasons why. ? Connect your estimate of price elasticity of demand to pricing decisions of the company: should it raise or lower prices so as to maximize total revenues? ? Speculate how our analysis changes if we are maximizing profits rather than revenues. ? Estimate the income elasticity of demand by guessing at the effect of a 10% income change on the sales level. Formulate how the assumed 10% income change and the change in sales level are the only two facts you need to estimate the income elasticity. ? Determine if the good or service tends to be an inferior good or a normal good; if a normal good determine if it is a necessity or a luxury; and finally, explain the reasons why.

2.
Describe and estimate the production for a good or service your company produces (or a company of interest to you). ? Describe the product, typical volumes, and typical prices ? Describe the form of ownership of your firm: sole proprietorship, partnership, corporation, non-profit corporation, government enterprise, government agency, cooperative, association, franchise ? Describe the inputs used in the production process: buildings, equipment, vehicles, labor (specialized skills or unskilled), land, raw materials ? Describe the technology of the production process: automated or labor intensive, non-automated capital intensive, land intensive ? Define the short run and the long run by identifying the inputs (or input) that define(s) and give examples of increasing marginal returns and diminishing marginal returns. ? If you have time and interest: ? Describe the method of control of inputs in your chosen firm: hierarchy, team production, worker discretion, quantitative or qualitative goals (on intermediate measures (cost reductions, sales contacts, orders) or final output [profits, sales volume, total revenues), direct monitoring; Describe the kind and degree of departmentalization: functional, multidivisional, matrix ? Describe the degree of integration in the firm: vertical and horizontal ? Describe future trends in the technologies, input supplies, and organizational form for your chosen firm

https://brainmass.com/economics/integration/price-elasticity-demand-goods-services-280205

#### Solution Preview

Microeconomics - I need to 2 questions answered a paragraph on each question or 10 sentences on each

need 2 questions by today friday 11/6/09 by midnight eastern standard time ohio time.

1. Describe and estimate the price elasticity of demand for a good or service of your company, or a company of interest to you. (Not your learning team good or service though!) ? Estimate the price elasticity of demand by guessing at the effect of a 10% price change on the sales level. Formulate how the assumed 10% price change and the change in sales level are the only two facts you need to estimate a price elasticity. ? Determine if the good or service tends to be elastic or inelastic, and the reasons why. ? Connect your estimate of price elasticity of demand to pricing decisions of the company: should it raise or lower prices so as to maximize total revenues? ? Speculate how our analysis changes if we are maximizing profits rather than revenues. ? Estimate the income elasticity of demand by guessing at the effect of a 10% income change on the sales level. Formulate how the assumed 10% income change and the change in sales level are the only two facts you need to estimate the income elasticity. ? Determine if the good or service tends to be an inferior good or a normal good; if a normal good determine if it is a necessity or a luxury; and finally, explain the reasons why.
The price elasticity of demand for a good or service of my company is -1.15. My firm makes plastic knives and forks that are used by catering companies. This means that if there is a price increase of 10% there is decrease in quantity sold by 11.5%. At a point in time we assume that all other factors remain the same. This is true because usually other factors do not change at the very moment that has been randomly selected for the experiment. The goods are elastic. The reason is that the elasticity is -1.15. Since, this elasticity is less than -1.0, the goods are elastic. To maximize its revenue the firm must reduce its prices. To maximize the total ...

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This solution gives you a detailed discussion on price elasticity of demand

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