Chapter 2 - measures the responsiveness or sensitivity of...

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Chapter 2 : Demand Theory Market Demand Schedule Table Laptop computer Price of computer Quantity demanded per year (000) $3000 800 $2750 975 $2500 1150 $2250 1375 $2000 1500 Graph DRAW IT Market demand function In equation form Quantity demanded of food x Which is Q = F(price of x, incomes of consumers, tastes of consumers, prices of related goods, advertising, population) To be useful for forecasting plus analytical purposes we can write this equation for our specific product as : Q= b1P+ b2I – b3S + b4A I = $13,000 S=$4,000 A = $50,000,000 = b1 ∆Q∆P = b2 ∆Q∆I = b3 ∆Q∆s = b4 ∆Q∆A Q = -700P + 200I -500S + 0.01A Q = 29 00 000 – 700P P = 4143 – 0,001429Q
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The price Elasticity of Demand is defined as the percentage change in quantity demanded resulting from a 1% change in price. It
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Unformatted text preview: measures the responsiveness or sensitivity of consumers to change in price of consumers to change in price of a good or service. = % % Q P = = * = QQPP QQ PP QP Range of Elasticities Elastic Segment of demand for which < - 1 In mathematical terms demand is elastic when the numerator is greater then the denominator (%changeP) TR increases with a decrease in price + TR decreases with an increase in price in the elastic range of demand curve. Inelastic segment of demand for which >-1 In mathematical terms demand is inelastic when %changeQ is less then %changeP. TR will increase with an increase in price + TR will decreae with a decrease in price in the inelastic range of demand curve....
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This note was uploaded on 09/24/2011 for the course MGCR 2049 taught by Professor Edwardbierbrier during the Spring '10 term at McGill.

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Chapter 2 - measures the responsiveness or sensitivity of...

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