chapter 6 study questions

chapter 6 study questions - Rahim Spencer 10/16/09 ECON...

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Rahim Spencer 10/16/09 ECON 203 Chapter 6 Study Questions 1. The choices between the units makes no difference in determining elasticity because elasticity typically varies over the different price ranges of the same demand schedule or curve. In this curve, the demand is more price elastic toward the upper left than to- ward the lower right. 2. E d = [(2-1)/(3÷2) ÷ (4-5)/(9÷2)] = 3 E d = [(3-2)/(5÷2) ÷ (3-4)/(7÷2)] = 1.4 E d = [(4-3)/(7÷2) ÷ (2-3)/(5÷2)] = .715 E d = [(5-4)/(9÷2) ÷ (1-2)/(3÷2)] = .333 The curve shows that the demand is elastic in the top left portion and inelastic in the bottom right portion. It illustrates that the slope of a demand curve is not a sound basis for judging elasticity. Demand is elastic in the Northwest segment because the prices are higher, and it is lower in the Southeast segment of the graph.
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3. This graph shows that price and total revenue change in the opposite direction. Lowering the price increases total revenue only in the top left portion of the demand curve; the total revenue decreases in the bottom right portion of the graph. This shows that the demand curve is not a sound basis for judging elasticity; changes in price and quantity involves relative, or percentage changes for elasticity.
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chapter 6 study questions - Rahim Spencer 10/16/09 ECON...

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