Price elasticity, Microeconomics

The price elasticity ( ε ) of demand for Q has been estimated at -0.5. Current consumption Q* is 70 units and market price (P*) is 0.70.

a. Fit a linear demand curve to the observed market data. Illustrate your result using a suitably labelled diagram. Hint: ε - = b(P*/Q*)and the equation for a linear demand function is Q* = a-bP*.

b. Now assume that the price of Q increases to P* = 0.80. Using your estimated demand function, calculate the change in consumer surplus arising from the price increase. Illustrate your result.

Posted Date: 3/30/2013 6:13:21 AM | Location : United States







Related Discussions:- Price elasticity, Assignment Help, Ask Question on Price elasticity, Get Answer, Expert's Help, Price elasticity Discussions

Write discussion on Price elasticity
Your posts are moderated
Related Questions
Describe stabilisation policies as by the International Monetary Fund (IMF). Define stabilisation policies as basically a list of demands set forward by the IMF to a debtor nat

Elasticity- a) The price of good X goes up by 2.75%, the quantity demanded of good Y goes from 10,500 units to 25,000.  What is the Exy?  What does that number mean?  What is th

the demand and supply functions for goods are given by demand:Pd=50-3Qds and supply:Ps=14=1.5Qs. where p is the price of a pair of jeans, Q is the number of pairs of jeans a) calc

if the inverse demand curve is p = 120 - Q and the marginal cost is constant at 10, how does charging the monopoly optimum and the welfare of consumers, the monopoly, and society?

define opportunity cost and how it is useful in managerial decision making?

Why is it true that shortages usually occur mainly when price controls are in effect? In the nonexistence of price controls the shortage generally goes away quickly because price

When you drop by the only coffee shop in your neighbourhood, you notice that the price of a cup of coffee has enhanced  considerably since last week.  You decide it's not a big dea

factor influencing quantity supplied

The State of Confidence in Conventional Judgements : While individuals fall back on conventions to guide their behaviour in the face of uncertainty, they are also aware that th

The Hypothesis of Inflation-Unemployment Trade-off : This hypothesis about formation of expectations is therefore known as the hypothesis of adaptive expectations. The hypothes