Law of demand
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The document discusses the law of demand and price elasticity of demand (PED). It provides definitions and formulas for PED and describes the different types of PED: perfectly inelastic, perfectly elastic, unitary elastic, and relatively elastic or inelastic. It explains the relationship between PED and total revenue: total revenue increases when demand is inelastic and decreases in the elastic range, with maximum total revenue achieved when PED equals 1.
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The document defines price elasticity of demand (PED) and explains the different types of elasticity:
1) Perfectly elastic demand has a PED of infinity and quantity demanded does not change with price.
2) Perfectly inelastic demand has a PED of zero and quantity demanded does not change with price.
3) Elastic, inelastic, and unitary elastic demands are defined by their PED falling between the extremes of 0 and infinity.
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This document defines elasticity of supply as the responsiveness of the quantity supplied of a good to a change in its price. It provides a formula for calculating elasticity of supply and describes different types of supply elasticity, including perfect inelastic supply where quantity supplied does not change with price changes, relatively less-elastic supply where supply changes less than proportionately to price changes, relatively greater elastic supply where supply changes substantially to small price changes, unit elastic supply where supply changes exactly proportionately to price changes, and perfect elastic supply where supply is infinite at a given price point.
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Elasticity measures the extent to which demand changes in response to a change in price. There are different degrees of price elasticity including perfectly elastic, perfectly inelastic, unitary elastic, relatively elastic, and relatively inelastic demand. Cross elasticity and income elasticity also measure responsiveness of demand but to other factors like substitute goods and consumer income levels respectively. Methods for measuring price elasticity include the total expenditure method, percentage method, point method, arc elasticity, and revenue method.
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The document defines price elasticity of demand (PED) and explains the different types of elasticity:
1) Perfectly elastic demand has a PED of infinity and quantity demanded does not change with price.
2) Perfectly inelastic demand has a PED of zero and quantity demanded does not change with price.
3) Elastic, inelastic, and unitary elastic demands are defined by their PED falling between the extremes of 0 and infinity.
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This document defines elasticity of supply as the responsiveness of the quantity supplied of a good to a change in its price. It provides a formula for calculating elasticity of supply and describes different types of supply elasticity, including perfect inelastic supply where quantity supplied does not change with price changes, relatively less-elastic supply where supply changes less than proportionately to price changes, relatively greater elastic supply where supply changes substantially to small price changes, unit elastic supply where supply changes exactly proportionately to price changes, and perfect elastic supply where supply is infinite at a given price point.
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Demand and supply
This document discusses key concepts related to demand and supply, including:
1) Demand and supply schedules show the relationship between price and quantity at different price levels. Demand and supply curves graph this relationship.
2) A change in a non-price factor like income causes a shift of the demand or supply curve, while a price change results in movement along the curve.
3) Equilibrium occurs where quantity demanded equals quantity supplied. Price controls can result in surpluses or shortages from the equilibrium.
4) Elasticity measures the responsiveness of one variable to changes in another. It is used to analyze how changes in price or other factors affect revenue and consumer behavior.
Elasticity Part (1)
Here are the answers to the questions:
1) Using the formula: E = (% change in QD) / (% change in P)
At point A:
% change in QD = (100 - 80)/100 = 20%
% change in P = (60 - 40)/40 = 50%
E = -20/50 = -0.4
2) The elasticity value is between 0 and -1, meaning the demand is inelastic.
3) The demand curve would be downward sloping and relatively steep, indicating inelastic demand.
Q.DXPXpointElasticityShape of demand curve
10040A-0.4InelasticSteep
My elasticity
1. Elasticity is a measure of how responsive quantity is to price changes. It compares percentage changes in quantity and price.
2. Demand can be inelastic (|ED| < 1), unitary (|ED| = 1), or elastic (|ED| > 1). Inelastic demand leads to higher total revenue from a price rise.
3. Factors like availability of substitutes, importance of the good, and time horizon affect price elasticity of demand. Income elasticity measures responsiveness to income changes.
2.4 concepts of elasticity and use of labour demand elasticity.
This document discusses concepts of elasticity, specifically price elasticity of demand and supply. It defines elasticity as the percentage change in one variable due to a 1% change in another variable. There are three types of demand elasticity: price, income, and cross. Price elasticity measures how quantity demanded responds to price changes. Knowledge of price elasticity helps businesses determine if price changes will affect revenue. Elasticity can be elastic (over 1), unit elastic (equal to 1), or inelastic (under 1). The document also discusses elasticity of labor demand and supply. Labor demand elasticity depends on product demand elasticity, labor's cost share, and substitutes. Labor supply elasticity is more inelastic for skilled
Similar to Law of demand (20)
Relationship bw quantity demanded and total revenue of the firm depending on...
Relationship bw quantity demanded and total revenue of the firm depending on...
Income Elasticity of Demand, Cross Price Elasticity of Demand, Price Elastici...
Income Elasticity of Demand, Cross Price Elasticity of Demand, Price Elastici...
Demand elasticity and measurement of price elasticity.
Demand elasticity and measurement of price elasticity.
2.4 concepts of elasticity and use of labour demand elasticity.
2.4 concepts of elasticity and use of labour demand elasticity.
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Law of demand
- 1. LAW OF DEMAND A microeconomic law that states that, all other factors being equal (ceteris peribus), as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.
- 3. PED is a measure of the sensitivity (or responsiveness) of the quantity of a good or service demanded to changes in its price. The formula for the coefficient of price elasticity of demand for a good is:_
- 10. The relationship between PED and total revenue can be described for any good: When the price elasticity of demand for a good is perfectly inelastic (Ed = 0), changes in the price do not affect the quantity demanded for the good; raising prices will cause total revenue to increase. When the price elasticity of demand for a good is relatively inelastic (- 1 < Ed < 0), the percentage change in quantity demanded is smaller than that in price. Hence, when the price is raised, the total revenue rises, and vice versa. When the price elasticity of demand for a good is unit (or unitary) elastic (Ed = -1), the percentage change in quantity is equal to that in price, so a change in price will not affect total revenue. When the price elasticity of demand for a good is relatively elastic (- ∞ < Ed < - 1), the percentage change in quantity demanded is greater than that in price. Hence, when the price is raised, the total revenue falls, and vice versa. When the price elasticity of demand for a good is perfectly elastic (Ed is − ∞), any increase in the price, no matter how small, will cause demand for the good to drop to zero. Hence, when the price is raised, the total revenue falls to zero. Hence, as the accompanying diagram shows, total revenue is maximised at the combination of price and quantity demanded where the elasticity of demand is unitary
- 11. A set of graphs shows the relationship between demand and total revenue (TR). As price decreases in the elastic range, TR increases, but in the inelastic range, TR decreases. TR is maximised at the quantity where PED = 1.