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Microeconomics Chapter 6

Microeconomics Chapter 6 - Homework Assignment for Chapter 6

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2. Why do economists use percentages rather than absolute amounts in measuring the responsiveness of consumers to changes in price? There are two reasons why economists do this. The first reason is so that the choice of units (or how we measure) does not affect the apparent outcome of our formula. The book gave a wonderful example of how switching from using a dollar as a unit, and using pennies as your unit would completely alter the way you looked at the outcome. The second reason is so we can compare consumer responsiveness in different products. Percentages allow us to see why a dollar increase on a one-dollar item would cause more of an issue with consumers than a dollar price increase on a thousand dollar item; it is all in the percentages. 3. How do you interpret the coefficient of the price elasticity of demand? Explain when E d is 1.5, 0.7, and 1.0. First of all, the formula to determine the price elasticity of demand will always yield a negative number.
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