The Change Of Price Elasticity Of Demand

Superior Essays
Q1 (a)
The demand can be defined as willingness and ability of consumers to pay and supply can be defined as the willingness and ability to sell. Besides, a tax is a type of measurement for the government to regulate the market and it can get a revenue from that. In fact, a tax will make both supply and demand decrease because buyers should pay a higher price and sellers will spend cost more money to supply. The diagram of tax on sellers will be shown following.

As shown in diagram (a), the previous equilibrium price of supply a can of cola is $5.00 and we suppose that tax equals to $3.00, which leads to the S1 curve shifts upward and get a higher equilibrium price at $8.00. Additionally, the blue frame in the diagram is government revenue,
…show more content…
The price elasticity of demand can be calculated as the percentage change in quantity demanded divide percentage change in price.

Q2 (b)
There are various reasons that will cause the change of price elasticity of demand. For example, the substitution between two goods such as Cola and Fanta because when the price of cola increase, the demand of Fanta will increase. Besides, how much the consumer will spend on high in sugar content may depend on the income. If his income decreases than before, he will choose to buy other necessaries. Furthermore, the elapsed since the change of price can also influence the price elasticity of the product. If a consumer is used to buy high in sugar content that helps to a price change more elastic demand for the good.
Q2 (c)
The size of burden relies on price elasticity. The following two diagrams will show how price elasticity of demand will play a role in determining the size of the burden on
…show more content…
And we can see that when demand curve is elastic, the consumer burden is 1x70=70 but when demand is inelastic, the consumer burden is 2x90=180. Therefore, the conclusion can be made that when demand curve is steeper, the consumer burden will increase.
Q2 (d)
Allocative efficiency is a state of the economy in which production represents consumer preferences. The following diagram will show the allocative efficiency.
On the basis of this diagram, when demand curve is vertical which is to say that when the price elasticity of elastic is perfectly inelastic, there is no deadweight loss and l assume that the tax=$0.5. From the diagram, the total surplus is maximizing and marginal social cost equals the marginal social cost.

3 a
The indifference curve is a line that shows combinations of goods among which a consumer is indifferent. Because Good H and Good G are close substitute,The diagram is consists of three concave curve, and the following diagram shows Pablo 's indifference curve. And l assume that an MRS is 1.

As shown in the diagram, the points M, N, and K are the situation that MRS equals 1 for the perfect substitution. But the Good H and GOOD G are a very close substitute, the IC1 IC2 IC3 are very close to the perfect substitution

Related Documents

  • Decent Essays

    Naked Economics Quiz

    • 658 Words
    • 3 Pages

    16. 18. If its above=surplus, If its below=shortage 19. If the price is above equilibrium, it will move along the demand curve, thus trying to reach equilibrium. 22.…

    • 658 Words
    • 3 Pages
    Decent Essays
  • Improved Essays

    Minimum wage is a relatively new concept in the labour market. It was created with the idea that minimum wage will be a stepping stone into a better paying job in mind. As the years have gone by, minimum wage jobs have evolved from supporting teenagers and giving them the necessary experience in the work field to supporting families. It’s this change in dynamics that fuels the argument that minimum wage should increase to a living wage. What people fail to realize is that minimum wage exists for a reason and should it be increased; the positive impacts are outweighed by the negative impacts in the economy.…

    • 592 Words
    • 3 Pages
    Improved Essays
  • Great Essays

    Acc 561 Week 9 Final Paper

    • 1345 Words
    • 6 Pages

    1-Non-profit organization: “A business entity that is granted tax-exempt status by the Internal Revenue Service. Donations to a nonprofit organization are often tax deductible to the individuals and businesses making the contributions”. 2- Share: “one of the equal parts into which a company's capital is divided, entitling the holder to a proportion of the profits”.…

    • 1345 Words
    • 6 Pages
    Great Essays
  • Improved Essays

    Helping indivDuals would be able to feed the families and also help the farmers who grow the apples and pears. One supply curve would be the more of the quantity the curve would shift downwards to the right. The demand curve would be when there is a shift of the curve the curve would be to the left. The shifts are lowered because of many factors for instance quantity, demand, prices and many other factors. If the prices are high more consumers may not buy them.…

    • 801 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    However, increases in price of a good will decrease the demand for its compliment The final factor is Consumer income. Consumer income is the amount of money an individual is rewarded after preforming a job once taxes and other expenses have been deducted from the amount. There are three ways the demand for a good can respond to a change in consumer income.…

    • 780 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Fin 511 Week 1 Assignment

    • 634 Words
    • 3 Pages

    CHARLES STURT UNIVERSITY SYDNEY DARLINGHURST CAMPUS LEVEL 1, 63 OXFORD STREET DARLIGHURST NSW 2010 AUSTRALIA ASSIGNMENT ON ECONOMICS FOR BUSINESS 511 SUBMITTED TO KARUNAGARAN MADHAVAN SUBMITTED BY RUJALA SHRESTHA STUDENT ID : 11640342 5th AUGUST ,2017 Question 1 The objective of producer is to produce the goods and services and supply to the customers in an appropriate price which is determined through price elasticity of the demand of the product. The producer is interested in price elasticity because it helps to determine the price in equilibrium point where it can make profit to producers and satisfy the customers toward that consumed product. The total revenue is calculated by multiplying the price per unit of the product with…

    • 634 Words
    • 3 Pages
    Improved Essays
  • Great Essays

    Quantity 28. Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? a. D1 b. D2 c. D3 d. All of the above are equally elastic.…

    • 2825 Words
    • 12 Pages
    Great Essays
  • Improved Essays

    When the value of price of elasticity is smaller than one (if the demand is inelastic), an increase in tuition would lead to an increase in revenue. However, if the value of elasticity is one, this implies that an increase in tuition fee does not influence revenue. Therefore, if the true value of elasticity is 1.2, which implies that raising of…

    • 1032 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    In the predicting situation with 25$ tariff on each television import, the supply of foreign television will go down first. The scarce of television in American market will then lead the domestic price of television increasing until it reach to 25$ above its original prices (27). According to the textbook, the simple graph with a vertical upward sloping line and a vertical downward sloping line resembles the supply and demand in the market by eliminating other effects. It is intuitive to forecast the shift on prices and quantities when the demand curve or supply curve shifts leftward or rightward. To explain the case in the CHOICE, the supply of television shift leftward due to fall in foreign producers, so the price increases and quantity decreases.…

    • 679 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    As the demand increases, available supply decreases and an increased supply may satisfy available demand at that price. Prices may fall if supply continues to grow. If supply decreases,…

    • 776 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Samsung Law Of Demand

    • 714 Words
    • 3 Pages

    The relationship between price and quantity demanded is the demand relationship, the quantity demanded is the amount of a product people are willing to buy at one particular price.…

    • 714 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    Price elasticity of demand measures the dimension to which the quantity of demand for a service or good changes when the price of service or good changes. In order to find the price elasticity of demand it has to be compared the change in quantity demanded with the change in price, (Lipsey and Chrystal, 2011). The demand for Starbucks coffee is price elastic, because it is not categorised as a necessity good where the buyers have to buy regardless the price, Starbucks coffee is considerate as a luxury good and the demand for it will decrease if the prices rise due to the huge market of competitors selling the same products as Starbuck.…

    • 1051 Words
    • 4 Pages
    Improved Essays
  • Superior Essays

    This can help marketing departments determine the appropriate amount of advertising in relation to the pricing promotion (McGuigan, pg.78) Cross elasticity is 0.6798. This product is inelastic to competitor pricing thus they don’t need to worry about competitor pricing. If competitor pricing increases our product demand could increase. Income elasticity is greater than 1 thus elastic.…

    • 703 Words
    • 3 Pages
    Superior Essays
  • Improved Essays

    - for price elasticity of demand is the proportional change in demand given a change in price( Patrick L et al. 1997) PED = ( % change in the quantity demand)/(% change in the price) = (%∆QD)/(%∆P) Or % ∆ QD mearused as follows for two different quantities…

    • 1158 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost. a. How much will the firm produce? b. How much will it charge? c. Can you determine its profit per day?…

    • 719 Words
    • 3 Pages
    Improved Essays