Activity 2 to session 4 - Business Microeconomics Activity...

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Business Microeconomics Activity 2 to Sess. 4: The measurement of Elasicity 1 ACTIVITY 2: THE MEASUREMENT OF ELASTICITY 1. Point elasticity of Demand Example #1: Given the market demand schedule in Table 1, we can find e for a movement from point B to point D and from point D to B, as follows: Table 1 Point P x ($) Q x A 8 0 B 7 1,000 C 6 2,000 D 5 3,000 F 4 4,000 G 3 5,000 H 2 6,000 L 1 7,000 M 0 8,000 Example #2: Given the market demand schedule in Table 2 we can find e for a movement from point C to point F, from F to C and midway between C and F, as follows: Table 2 Point P y ($) Q y A 7 500 B 6 750 C 5 1,250 D 4 2,000 F 3 3,250 G 2 4,750 H 1 8,000 2. Point elasticity and total expenditure Example #3: In Table 3, we find e at points B, C, D, F, G, H and L for the demand curve of Example 1 and can observe what happens to total expenditures on commodity X as P x falls. At point B, e = TM/OT = 7,000/1,000 = 7 . The coefficient of price elasticity of D x at other points is found in a similar way. As we approach point A, e approaches infinity. As we approach point M, e approaches zero.
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