# Week 2 Assignment 2: Elasticity and Its Application

Over the last year boss has noticed that it would be useful for your firm to understand how consumers behave when variables in the market change and how these changes affect the total revenue for your product.  You have been asked to do an analysis for your product, Good A, by addressing the following questions and reportinf the results to your boss in a formal paper.

1. Define the price elasticity of demand? What information does it provide? How is it calculated?

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2. Define the income elasticity of demand? What information does it provide? How is it calculated?

3. Define the cross-price elasticity of demand? What information does it provide? How is it calculated?

4. What is total revenue? How is it calculated?

5. Define elastic, inelastic, and unitary elasticity means. How are these related to total revenue? Explain your answers.

6. Wigh respect to the price elasticity of demand, construct a graph using the data in Figure 1. illustrate the ranges on the demand curve that indicate elastic, inelastic, and unitary elasticity. Explain your answers. Enter non-numerical respones in the same worksheet using textboxes.

7. Calculate the total revenue for each level of demand and post into the table, Figure 1.

8. Using the midpoints formula presented in the textbook, calculate the price elasticity coefficient for each price level, staring with the coefficient for the \$4 to \$6 level. For each coefficient, indicate each type of elasticity: elastic demand, inelastic demand, or unitary demand. Post your answers into the table, Figure1.

9. Assume that the income of sonsumers changes by 10%, and as a result the quantity demanded for Good A changes by 8%. What is the income elasticity of demand for Good A? What does this mean for your company?

10. Assume that the price of competing Good B decreases by 5% and as a result, the quantity demand for Good A decreases by 8%. What is the cross-price elasticity for your product? What type of goods are Good A and Good B.

Figure 1: The Demand Schedule for Barbeque Dinners

 Price Quantity Demanded Total Revenue Elasticity Coefficient Elastic or Inelastic \$4 100 __________ XXXX XXXX 6 80 __________ __________ __________ 8 60 __________ __________ __________ 10 40 __________ __________ __________ 12 20 __________ __________ __________ 14 1 __________ __________ __________

Required:

1. Microsoft Word document: Questions 1-5, 7-10

2. Microsoft Excel worksheet: Question 6

midpoint formula is

Book is Mankiw, N. (2014). Principles of Economics (7th ed). Cengage Learning