Practice Problems for Elasticity Essay Example | Topics and Well Written Essays - 2500 words

Practice Problems for Elasticity - Essay Example Price elasticity is always negative for complements. Forth and last, income, a change in income causes a shift in demand. Income elasticity f demand is calculated as the percent change in demand divided by the percent change in income. This change determines the magnitude f the shift. Demand can increase or decrease with the increase or decrease in income. Along any straight-line demand curve, elasticity decreases from infinity to zero. In the range f the demand curve where elasticity is more than one, decreasing price increases revenue. In the rage where elasticity is less than one, however, decreasing price decreases revenue. My service selection is Pet Day Care and I have found it to price elastic...meaning that there are several substitutes. Low-end services like dog walking are good substitutes for drop-off pet day care centers. A fall in the price for someone to come to your home and let your dog out or walk or dog may likely decrease the demand for you take your pet to an "All-Day" daycare facility. The lower price f the "In-Home" service induces consumers to purchases these services versus those f a drop-off or "All-Day" facility. The cross-price elasticity f Pet Day Care with respect to drop-off or in-home service determines the magnitude f shift in the demand curve. Lowering the price f drop-off service would likely increase demand and revenue. Immediate substitutes or replacements f... Where as a walking service averages about $25 per week for 2 ten-minute daily walks Monday through Friday and in home services averaging $25 - $30 per day. Price adjustments have increased demand in the drop-off sector as having space resources readily available i.e. -warehouse space or open land have become increasingly available and by market standards, very cheap to acquire and maintain. This project was able to focus on the market structure f a Pet Day Care service. Each division represents a different market structure. I learned about perfect competition part day care, full day care, and in home pet day care. The changes depended on the type f pet care the pet owner went with. It was interesting to see how the changes and decisions that are made in the different types f care can affect the results f the prices and the cost/profits for the service. Microeconomics Price Elasticity f Demand 1.) If the price elasticity f demand for heroin is estimated to be about 0.4 this means that the demand is mostly inelastic because the elasticity demand is less than one. Being mostly inelastic means a percent change in price leads to a less than proportional percent change in quantity demanded. So if there is a 10% increase in price, it will lead to a 4% decrease in quantity demanded. 2.) If the price f heroin increases, given its inelastic demand, the suppliers' income will increase. This is proved to be true because mostly inelastic demand and total revenue are directly related. When the price is raised on heroin the percentage changed f quantity demanded is less than the percentage changed for the price in turn raising the total revenue f the heroin dealers. This policy has