Elasticity and consumption expenditure, Managerial Economics

Assignment Help:

The relationship between, total expenditure and price elasticity of demand has summed up in the below table:

Table: Elasticity and Consumption Expenditure

Elasticity

(ece)

Price change M

Marginal Expenditure

Total Consumer

Expenditure

ece< 1

Rise

ME < 1

Decreases

Fall

ME > 1

Increases

ece = 1

Rise

ME = 1

Constant

Fall

ME = 1

Constant

ece > 1 R

Rise

ME < 1

Increases

Fall

ME < 1

Decreases

As illustrated in Table above, when ece> 1, for example demand is elastic, an increase in price causes more than proportionate decrease in quantity demanded. Therefore, total expenditure decreases. And, if price decreases quantity demanded increases more than proportionately. Consequently total expenditure increases.

When ece = 1, a rise (or fall) in price causes a proportionate fall (or rise) in quantity demanded leaving total expenditure unchanged.

When ece< 1, it implies when demand is inelastic, a rise in price causes a rise in the total expenditure since demand decreases less than proportionately and a fall in price decreases it as quantity demanded increases less than proportionately.


Related Discussions:- Elasticity and consumption expenditure

Give brief description about economics, Economics is generally defined as t...

Economics is generally defined as the problem of how best to allocate limited resources, limited because needs are characterized as unlimited, but common sense tells us that rather

Explain the no new substitutes for the commodity, No new substitutes for th...

No new substitutes for the commodity If some new substitutes for a commodity appear in the market, its demand normally declines. This is quite natural, since with the availabil

What are tools of factor markets and distribution of income, What are the t...

What are the tools of factor markets and the distribution of income? Tools of factor markets and the distribution of income: a. Factor distribution of income b. Marginal

Oligopoly theory, in the context of oligopoly theory explain the channels v...

in the context of oligopoly theory explain the channels via which either a cost reduction or a quantity increase influence a supplier''s profitability

Knight theory of the profit, Frank H. Knight treated profit as a residual r...

Frank H. Knight treated profit as a residual return to uncertainly profit. Obviously knight made a distinction between risk and uncertainly he divided risk into calculable and non-

Demand, distinguish between industry demand and firm demand..

distinguish between industry demand and firm demand..

Voluntary monopoly through combinations, To eliminate competition and there...

To eliminate competition and thereby secure higher prices, firms producing a specific product can come together and make monopoly agreements. These are called as industrial combina

Inflation, Meaning The word inflation has at least four meanings. ...

Meaning The word inflation has at least four meanings. A persistent rise in the general level of prices, or alternatively a persistent falls in the value of money.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd