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

MBA, Discuss whether Indian Consumer goods industry is growing at the cost ...

Discuss whether Indian Consumer goods industry is growing at the cost of future Profitability.

Economic benefits, Singapore Airlines  is facing the possibility of a new c...

Singapore Airlines  is facing the possibility of a new competitor " Qantas " to enter the Singaporean market, especially in premium market, Singapore Airlines is dominant on the ma

Determine that the laws of economics still work today, (i) Do the laws of e...

(i) Do the laws of economics still work today? (use the case discussed in class to answer this question or any other examples) (ii) Provide examples of three factors that can sh

Real economies of scale, Real economies are delineated as those which are a...

Real economies are delineated as those which are associated with a reduction in the physical quantity of inputs like raw materials, varying kinds of labour and various kinds of cap

Short run equilibrium of a firm under monopoly, The short run equilibrium o...

The short run equilibrium of monopolist is displayed below in figure. Figure: Abnormal Profit under Monopoly AR is the average revenue curve, MR is marginal revenue cu

#title.total revenue, if Q=120-2p is the equation for demand curve, find th...

if Q=120-2p is the equation for demand curve, find the compounding total, marginal and average revenue function

High level of supervision, Let consider the following game among an employe...

Let consider the following game among an employer (Katharine) and an employee (Kevin). Katharine needs Kevin to work hard rather than loaf around and  that is why she considers spe

Uses of production function, The production function can have many uses. It...

The production function can have many uses. It can be used to compute least-cost factor combination for a given output or maximum output combination for a given cost. Knowledge of

Importance of demand forecast, Management Decisions: An effective demand f...

Management Decisions: An effective demand forecast assists the management to take suitable steps in factors which are relevant to decision making like plant capacity, raw-material

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