Price elasticity of demand

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Intros
Lessons
  1. Price Elasticity of Demand Overview:
  2. Definition for Elasticity
    • Analyze supply and demand with good precision
    • How buyers and sellers respond to change
    • Price Elasticity of Demand
    • Why is it important
  3. Formulas for Price Elasticity of Demand
    • Two ways to calculate Elasticity of Demand
    • Point Elasticity of Demand
    • Arc Elasticity of Demand
    • An Example of using both
  4. Notes about Price Elasticity of Demand
    • Why use average price and quantity?
    • Percentages and Proportions
    • Units-Free Measure
  5. Types of Demand Curves
    • Inelastic demand and elastic demand
    • What each value of elasticity means
    • Perfectly inelastic, perfectly elastic, unit elastic
  6. Total Revenue and Price Elasticity of Demand
    • How to calculate total revenue
    • How revenue changes in an inelastic demand
    • How revenue changes in an elastic demand
    • How revenue changes in a unit elastic demand
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Examples
Lessons
  1. Understanding Price Elasticity of Demand
    Suppose the price of oranges increases from $1 to $3 a box, and the quantity demanded decreases from 500 to 300 boxes a day. Calculate the point elasticity of demand and the arc elasticity of demand.
    1. If the quantity of car services demanded increases by 30% when the price of car services decrease by 20%, is the demand for car service elastic, inelastic, or unit elastic?
      1. The following graph shows the demand for books.
        Price elasticity of demand
        Calculate the arc elasticity of demand when the price increases from $2 to $4 a book. Over what price range is the demand for books inelastic?
        1. Suppose the company decided to decrease the price of chocolate from $10 to $6. They expect that the price cut will boost the chocolate sales by 40%.
          1. What is the arc elasticity of demand?
          2. If you were making the pricing decisions at this company, would you increase or decrease the price? Why?
        2. Suppose the company decided to decrease the quantity of phones from to 100 to 70. They expect that the quantity cut will boost the price sales by 22.2%.
          1. If you were making the pricing decisions at this company, would you increase or decrease the price? Why?