Microeconomics Chapter 4

1221 words 5 pages
Chapter 4

2. Why do economists use percentages rather than absolute amounts in measuring the responsiveness of consumers to changes in price?

Why do economists use percentages rather than absolute amounts in measuring the responsiveness of consumers to changes in price? Economists use percentages rather than absolute amounts for two different reasons. The first reason for using percentages rather than absolute amounts has to do with the affect a particular amount can have on demand. The example in our book refers to using dollars or pennies, in one instance the dollar amount leads to a demand that is elastic, however that same dollar amount in pennies would lead one to see that demand is inelastic. The amount is the same,
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We can take the price multiplied by the quantity sold to determine revenue for both years. In the first year the station owner grossed $4.00 x 1000 cars = $4,000 total revenue. In the second year the owner grossed $5.00 x 850 cars = $4,250 total revenue. The owner parked less cars for a higher price and still made a profit of $250 over the previous year. Based off of this information it was a good decision.

22. Explain why the following situations would occur in terms of the factors that affect elasticity.
(a) Demand for cellular service is inelastic in the short run, but more elastic in the long run.
(b) Demand for a bakery’s bread is elastic, while demand for bread is inelastic.
(c) Demand for personal computers is elastic.
(a) Demand for cellular service is inelastic in the short run, but more elastic in the long run. This is because in the short run the cellular service could be the only one available to the consumer. Allowing the cellular service to charge a higher price and still see a total revenue decrease. However, in the long run competition could arise and more companies become cellular service carriers, making the original service elastic and subject to lowering prices in order to gain revenue from additional consumers.
(b) Demand for a bakery’s bread is elastic, while demand for bread is inelastic. This example can be explained again by looking at what our book defines as elastic and inelastic. Demand for a bakery’s bread

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