Economics 101, Hiro Shimizu Spring 2000

Handout #3

Own-price Elasticity of Demand

Demand Schedule

for fountain pen
Price
per unit / Quantity Demanded
U / $100 / 0
V / $80 / 30
W / $60 / 60
X / $40 / 90
Y / $20 / 120
Z / $0 / 150
Calculating Own-price Elasticity of Demand with X and Y

(p0, q0) =

and

(p1, q1) =

______

|h| = ______

Demand Schedule

for fountain pen
Price
per unit / Quantity Demanded
U / $100 / 0
V / $80 / 30
W / $60 / 60
X / $40 / 90
Y / $20 / 120
Z / $0 / 150

Demand Curve for fountain pen

Price
100
80
60
40
20
0 / 30 60 75 90 105 120 150 180
Quantity Demanded
Absolute Value of h / Elastic or Inelastic?
U ® V / (a) / 9
V ® W / (b) / 7 / 3 / (2.33333)
W ® X / (c)
X ® Y / (d) / 3 / 7 / (0.42857)
Y ® Z / (e) / 1 / 9 / (0.11111)

·  A negatively sloped straight-line demand curve ______have a constant |h|.

·  A negatively sloped straight-line demand curve's |h| = ______at the midpoint of the curve.

·  A negatively sloped straight-line demand curve's |h| ______continuously as Qd increases.

Own-price elasticity of demand and Total Revenue (Total Expenditure)

Price
per unit / Quantity Demanded / Total Revenue of Sellers
(Total Expenditure of Buyers)
P ´ Q / Elastic or Inelastic?
U / $100 / 0 / Elastic
V / $80 / 30 / Elastic
W / $60 / 60 / Elastic

(c)

/ $50 / 75 / Unit Elastic
X / $40 / 90 / Inelastic
Y / $20 / 120 / Inelastic
Z / $0 / 150 / Inelastic

When the demand is elastic (U ~ W), as price ¯, TR (TE) ______.

When the demand is inelastic (X ~ Z), as price ¯, TR (TE) ______.

TR (TE) is maximized when the demand is ______.

Demand Curve for fountain pen

Price
100
80
60
40
20
0 / 30 60 75 90 105 120 150 180
Quantity Demanded

Linear Demand Curves with Constant Own-price Elasticity

As P changes, Qd stays the same.

In this case, the demand is ______.

As Qd changes, P stays the same.

In this case, the demand is ______.


Relatively Inelastic Demand and Relatively Elastic Demand