Microeconomics Chapter 4 Essay - 1220 Words

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,†¦show more content†¦So, for Ed=1 this represents unit elasticity. 8. The owner of a health club asks you for advice about whether the company should raise or lower the price of its membership this year based on the following information: last year the club raised the price of its membership by 5% and the number of members paying the same fee fell by 7%. Based on the information provided we could use the price elasticity formula to determine if the price change represented elastic or inelastic demand. Divide the change in quantity by the change in price (0.07/0.05) and find the price elasticity coefficient. Using what we have learned about price elasticity, it is clear that Ed=1.4, which is elastic. Using the table given in example 4.2, we see that a prince increase on an elastic good results in total revenue decrease. The owner should lower prices to see a total revenue increase. 11. A gasoline station very near a professional football stadium parks cars on its lot to make money on game days. Last year it charged $4.00 per car and parked 1000 cars. 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