Figure 224 demand for good x prices p3 p2 p1 b c d given p1...

Figure 2.24: Demand for Good X Prices ($) P3 P2 P1 B C D Given: P1 = $5.00 P2= $7.00 P3 = $9.00 Q1 = 40 Q2 = 56 Q3= 72 Q1 Q2 Q3 Quantity (Q) The estimated price-elasticity of demand at Point A is about -1.800 -1.700 -1.850 -1.750 Figure 2.24: Demand for Good X Prices (5) P3 P2 P1 Question 4 B C Given: P1 = $5.00 P2= $7.00 D P3 = $9.00 Q1 = 40 Q256 Q3次 Q1 Q2 Q3 Quantity (Q)

Transcript

00:01 So we have a figure here showing us a demand curve.

00:05 So like any demand curve, we have quantity on the x -axis, price on the y -axis, and this downward sloping demand curve.

00:13 As price increases, the quantity demanded decreases.

00:20 Completely normal.

00:21 Okay, so they're interested in calculating the price elasticity of demand, or ped.

00:28 Now, to calculate this, you find the change in quantity, over the change in price, where both of these are percentages.

00:36 So if the price were to increase by 20%, by what percentage would the quantity decrease by? that would give you the price elasticity of demand.

00:47 In which of the following cases could we possibly find that, one, demand is elastic, and two, that an increase in price causes an increase in revenue.

00:57 So let's start with the elastic demand.

00:59 We consider that demand to be elastic if the ped is greater than 1.

01:05 So that means, say, price increases by 10%.

01:08 Imagine if quantity dropped by 50%.

01:11 That'd be very elastic, very sensitive to changes in price.

01:15 People are very unwilling to buy that product if it changes price.

01:19 So what would we see there? so we've got these two prices, p1 and p2, and the price elasticity of demand would be p2 minus p1 over, well, the midpoint formula would be p1 plus p2 over 2.

01:37 And then on the denominator, we would have the same idea for quantities.

01:44 So this is the midpoint formula, because of the, oops, that's wrong way around.

01:49 For the denominator, you use the midpoint between the two values you were looking at.

01:58 There we go.

02:01 So what would happen if p1 and p2 were both between zero and $10 or between $10 and $15.

02:12 Well, nothing really exciting.

02:15 So let's focus on the demand curve we've been given because we could just get the price elasticity of demand from it.

02:22 For example, if we have a look, we've been given some values, so we can just go ahead and calculate it.

02:27 Because right now none of the options given immediately prove that demand is elastic.

02:32 So let's have a look...

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