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

PRICE CUTS FOR MEDICINE case study, 1. What kind of market structure is inv...

1. What kind of market structure is involved for the sale of medicines and vitamins? 2. What can be said about barriers to entry in this market? 3. Might there be a change in mar

Product differentiation, PRODUCT DIFFERENTIATION   Product differenti...

PRODUCT DIFFERENTIATION   Product differentiation describes a situation in which there is a single product being manufactured by several suppliers, and the product of each su

Determinants of the money supply, Determinants of the money supply Two...

Determinants of the money supply Two extreme situations are imaginable.  In the first situation, the money supply can be determined at exactly the amount decided on by the Cen

Distinguish between moral hazard and adverse selection, Question: i) T...

Question: i) The manager of Top Rock Company is introducing a new product that will yield $200 millions in profits if the economy does not go into recession. However, if a rec

Properties of indifference curves, Properties of Indifference Curves ...

Properties of Indifference Curves An indifference curve is usually convex to the origin. Indifference curves slope downwards from left to right. A set

Determine the specific place of demand, Determine the Specific Place of dem...

Determine the Specific Place of demand The demand should relate to a specific market as well. For instance, every year in the town of Dehradun, demand for school bags is 4,000

State the demand analysis, State the Demand analysis Analysis of dem...

State the Demand analysis Analysis of demand is assumed to forecast demand that is a basic component in managerial decision-making. Demand forecasting is of importance since

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