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Economics - Assignment Example

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Task 2 A. Explain the relationship between elasticity of demand and total revenue for the following ranges along the demand curve, using the attached “graphs for elasticity of demand, total revenue”. Include the impacts to quantity demanded and total revenue when there is a price decrease, ceteris paribus 1…
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Download file to see previous pages... Moving downwards from the point D on the demand curve to the midpoint C, absolute value of the elasticity of demand, though declining remains greater than one which causes total revenue to increase with the fall in price of the product. While reduction in price per unit of the commodity tends to reduce revenue, increase in quantity sold caused by it tends to increase the revenue. Price elasticity remaining greater than one above the midpoint C implies that the percentage increase in quantity demanded exceeds the percentage fall in price which causes the total revenue to increase. Therefore, up to the level of output Q which corresponds to the mid-point C of the demand curve, total revenue curve goes on increasing. 2. Inelastic range (e < 1): as we move downward from the mid-point C of the demand curve, price elasticity being less than one implies that relative increase in the quantity demanded is less than relative fall in price which causes total revenue curve to decline. Therefore beyond output OQ corresponding to the midpoint C of the demand curve, total revenue curve is sloping downward as shown in the figure. 3. ...
0 45 2 6.33 90 Elastic 40 3 3.40 120 Elastic 35 4 2.14 140 Elastic 30 5 1.44 150 Elastic 25 6 1.00 150 Unit elastic 20 7 0.69 140 Inelastic 15 8 0.47 120 Inelastic 10 9 0.29 90 Inelastic ...Download file to see next pagesRead More
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