Oct 19 Elasticity and TR and Applications

Oct 19 Elasticity and TR and Applications -...

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Demand Elasticities and  Relationship with Total Revenue   (10/19/10) AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Read Chapter 4 Schrimper and applicable  sections of the Dr. Brown’s lecture notes  (posted on Blackboard on Oct 5 th ) Journal Entry #4 is posted, with #5 posted  later today (due as a set on October 28 th ) 10/21 Class – Dr. Chambers, Chapter 5  Shrimper (Supply) along with applicable  sections of the Dr. Brown’s lecture notes  (posted on Blackboard on Oct 5 th )
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Price Elasticity of Demand Measures the Responsiveness of Changes in  the Quantity Demanded to Small Changes in  Price, Holding All Other Factors Constant  ….  More specifically, the percentage change in  quantity for a given percentage change in  price, holding  income, taste and preferences,  prices of other goods, population,  etc.,  constant Greater quantity responsiveness … more  elastic demand AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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Factors  Affecting the Magnitude of  Price Elasticities Availability of substitutes More substitutes, more elastic demand Proportion of budget spent on item Higher proportion, more elastic demand Time horizon (adjustment period) Longer time horizon, more elastic demand Degree of Necessity Not a necessity, more elastic demand
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Relationship of Price Elasticity of Demand to Changes in Total Revenue Total Revenue (TR) = Price (P) X Quantity (Q), Given the inverse relationship between P and Q along a given  demand curve, will TR increase or decrease with a given price  change? If the demand schedule is: Inelastic  -- the percentage change in price is more than the  percentage change in quantity resulting in revenue changing in  the same  direction as prices Elastic  --the percentage change in price is less than the  percentage change in quantity resulting in revenue changing in  the opposite  direction as prices AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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Total Revenue Changes for a  Given Price Change Price P 2 P 1 D 1 Price Quantity P 2 P 1 Q 2 Q 1 D 2 Inelastic Demand Elastic Demand Loss in Revenue Gain in Revenue Loss in Revenue Gain in Revenue
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Total Revenue Changes for a  Given Price Change Price P 2 P 1 D 1 Price Quantity P 2 P 1 Q 2 Q 1 D 2 Inelastic Demand Elastic Demand Gain in Revenue Loss in Revenue Gain in Revenue Loss in Revenue
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Relationship of Price Elasticity of Demand to Changes in Total Revenue AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Price
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Oct 19 Elasticity and TR and Applications -...

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