Economics 101, Hiro Shimizu Spring 2000
Handout #3
Own-price Elasticity of Demand
Demand Schedule
for fountain penPrice
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 penPrice
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
Price100
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)
Priceper 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 ElasticX / $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
Price100
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