if a paper raise it's price from .75 to 1.00 what implicit assumptions about the price elasticity of paper?
To derive the implicit assumptions about the price elasticity of paper from the given information, we can analyze the change in price and its impact on quantity demanded. Price elasticity of demand measures the sensitivity of quantity demanded to a change in price.
Here's how to derive the implicit assumptions about the price elasticity of paper based on the given information:
Step 1: Calculate the percentage change in price:
- Initial price = $0.75
- New price = $1.00
Percentage change in price = (New price - Initial price) / Initial price * 100
= ($1.00 - $0.75) / $0.75 * 100
= $0.25 / $0.75 * 100
= 33.33%
Step 2: Analyze the direction of the price change and its impact on quantity demanded:
Based on the information provided, the price of paper increased. In general, an increase in price tends to lead to a decrease in quantity demanded, assuming all other factors remain constant.
Step 3: Derive the implicit assumptions:
Since the price of paper increased, and assuming the quantity demanded decreased proportionally, we can infer the following implicit assumptions about the price elasticity of paper:
1. Demand for paper is relatively inelastic: If the quantity demanded for paper decreases proportionally less than the increase in price, it implies that the paper is relatively inelastic. This means that consumers are less responsive to price changes, and the percentage change in quantity demanded is less than the percentage change in price.
2. Demand for paper is not perfectly elastic: If the quantity demanded for paper decreases proportionally with the increase in price, it implies that the paper is not perfectly elastic. This means that consumers are somewhat responsive to price changes, but the percentage change in quantity demanded is proportional to the percentage change in price.
To validate these assumptions, further analysis and data are required, such as conducting a detailed study of consumer behavior, considering other factors influencing demand, and analyzing historical sales data.