In cost-plus pricing, prices are set by adding a markup to a product’s cost. The markup is usually a percentage. A-2 The price elasticity of demand measures the degree to which a change in price affects unit sales. The unit sales of a product with inelastic demand are relatively insensitive to the price charged for the product. In contrast, the unit sales of a product with elastic demand are sensitive to the price charged for the product. A-3 The profit-maximizing price should depend only on
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= AC = 20. At a price of $80, the quantity demanded is 600. Therefore consumers will buy 600 units b. You have to calculate the monopoly price. 200 – 0.4Q = 20 Q = 450; P = $110 profit = ($110 – 20)(450) Profit = $40,500 With the block pricing scheme, the monopolist makes The monompolist will make ($120 – 20)(400) on the first 400 units and ($80 – 20)(200) on the next 200 units, or $40,000 + $12,000 for a total of $52,000 on the blocking price scheme. 7. a. QE =
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brand image of the company’s private label we will be able to enter into a new market. Price Elasticity of Demand Dairy as an entire market is viewed by most as a necessity for health purposes. Whether it’s fluid milk, cultured yogurt, or cheese, the dairy market is elastic in relation to price. Elasticity in economics is reflective of supply and demand. If we make adaptations to quantity based upon price then the supply is elastic (Hall, n.d.). On the demand side, demand is
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market failure and give an example of each. Two causes of market failure are externality – which is the impact of one persons actions on the well being of innocent bystanders; and market power, which is one group / persons unduly influence on market prices. An example of externality is well designed public policy enhancing economic efficiency and an example of market power is everyone needing water but there is only one well and that owner doesn’t face competition. 3. Use a production possibilities
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Chapter 7: Elasticity 1 What you will learn in this chapter 1. Define and measure elasticity of demand and elasticity of supply. 2. Determine the relationship between demand elasticity and total revenue. 3. Understand the factors that determine elasticity of demand and elasticity of supply. Punchline • Imagine that some event drives up the price of gasoline (think about two examples) • How would consumers respond to the higher price? • By how much would consumption of gasoline fall? Answer
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given to establish student understands of key economic principles with particular emphasis on the Philippine Economic system, its growth and development. The course covers the foundation of economics, demand and supply analysis, the concept of elasticity, the theory of production and the fundamental concept of micro and macroeconomics with the use of simple graphical and mathematical illustrations. Likewise, the course involves topics on taxation and agrarian reform with discussion on issues and
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4 Elasticity: A Measure of Responsiveness Chapter Summary This chapter explored the numbers behind the laws of demand and supply. The law of demand tells us that an increase in price decreases the quantity demanded, ceteris paribus. If we know the price elasticity of demand for a particular product, we can determine just how much less of it will be purchased at the higher price. Similarly, if we know the price elasticity of supply for a product, we can determine just how much more of it will be
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Questions and Answers from Lesson I-7: Elasticity Practice Questions and Answers from Lesson I-7: Elasticity The following questions practice these skills: Use the midpoint method for calculating percent change. Compute price elasticity of demand. Identify elastic and inelastic demand according to the price elasticity of demand. For elastic demand, apply the negative relation between price and revenue. For inelastic demand, apply the positive relation between price and revenue. Remember demand
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and real prices of a product are two very different things. Nominal refers to the price of the product at a given period of time. However the real price of the product is the nominal price which has been adjusted due to changes that happen in the economy such inflation. This happens because, over time the prices of products rise and the value of money falls. Therefore expressing prices over a long period of time can sometimes be misleading. The peaks and troughs show when coffee prices were very
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refers to a decrease or increase in demand due to change in non-price factors affecting demand. Therefore, it is referred to as a shift in demand (Forstater and Mathew 57). For instance, tea and coffee are close substitutes, if there is a decline in the price of a substitute (coffee); demand for the other good (tea) will decline as indicated in the graph below. D0 indicate the initial demand curve for tea, however, after a decline in the price of coffee, the demand curve shift to D1.
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