Price elasticity of demand.Tell whether is elastic,perfectly inelastic,perfectly elastic, inelastic,or unit elastic. And what would happen to total revenue if a firm raised its price in each elasticity range identified.a.Ed=2.5 b.Ed=1.0 c.Ed=~ D. Ed=0.8
Elasticity of demand is the (%change in Q)/(%change in P). Greater then 1.0 is elastic, less than 1.0 is inelastic. While elasticities of demand are often expressed as positive numbers, in fact, they all should be negative. (When price goes up, quantity demanded falls.)
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Price elasticity of demand.Tell whether is elastic,perfectly inelastic,perfectly elastic, inelastic,or unit elastic. And what would happen to total revenue if a firm raised its price in each elasticity range identified.a.Ed=2.5 b.Ed=1.0 c.Ed=~ D. Ed=0.8
To determine the type of elasticity of demand, you need to compare the absolute value of the price elasticity of demand (|Ed|) to 1.0.
a. Ed = 2.5 (greater than 1.0): This is considered elastic demand. When a firm raises the price in elastic demand, the total revenue will decrease because the percentage decrease in quantity demanded is greater than the percentage increase in price.
b. Ed = 1.0 (equal to 1.0): This is considered unit elastic demand. When a firm raises the price in unit elastic demand, the total revenue remains the same because the percentage change in quantity demanded is equal to the percentage change in price.
c. Ed = ~ (approximately) 0.8 (less than 1.0): This is considered inelastic demand. When a firm raises the price in inelastic demand, the total revenue will increase because the percentage decrease in quantity demanded is less than the percentage increase in price.
Additionally, if the demand is perfectly inelastic (Ed = 0), the quantity demanded does not change regardless of the price, so the total revenue would remain the same regardless of the price change.
And if the demand is perfectly elastic (Ed = infinity), even a slight price increase would cause quantity demanded to drop to zero, resulting in total revenue being zero.