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Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022 Exercise 5
The relationship between the price elasticity of demand and total spending can also be used "in reverse"-elasticities can be inferred from changes in spending.
1. Use the two panels of Figure to show how the response of total spending to a fall in price can indicate what the price elasticity of demand is.
2. Suppose a researcher could measure the percentage change in total spending for each percentage change in market price. How could he or she use this information to infer the precise value of the price elasticity of demand?
Figure Relationship between Price Elasticity and Total Revenue
In both panels, price rises from P0 to P1. In panel a, total spending increases because demand is inelastic. In panel b, total spending decreases because demand is elastic.
1. Use the two panels of Figure to show how the response of total spending to a fall in price can indicate what the price elasticity of demand is.
2. Suppose a researcher could measure the percentage change in total spending for each percentage change in market price. How could he or she use this information to infer the precise value of the price elasticity of demand?
Figure Relationship between Price Elasticity and Total Revenue
In both panels, price rises from P0 to P1. In panel a, total spending increases because demand is inelastic. In panel b, total spending decreases because demand is elastic.
Explanation
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a) The following diagram shows an inelas...
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
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