Discussion
8506Week 2 Project
Assignment
Task: Submit to complete this assignment
Overdue – July 26 at 11:59 PM
Elasticity and Its Application
Over the last year your boss has noticed that it would be useful for your firm to understand how consumers behave when variables in the market change and how these changes affect the total revenue for your product. You have been asked to do an analysis for your product, Good A, by addressing the following questions and reporting the results to your boss in a formal paper.
Questions:
Define the price elasticity of demand? What information does it provide? How is it calculated?
Define the income elasticity of demand? What information does it provide? How is it calculated?
Define the cross-price elasticity of demand? What information does it provide? How is it calculated?
What is total revenue? How is it calculated?
Define elastic, inelastic, and unitary elasticity means. How are these related to total revenue? Explain your answers.
With respect to the price elasticity of demand, construct a graph using the data in Figure1. Illustrate the ranges on the demand curve that indicate elastic, inelastic, and unitary elasticity. Explain your answers. Enter non-numerical responses in the same worksheet using textboxes.
Calculate the total revenue for each level of demand and post into the table, Figure 1. (Copy and paste this table into the Microsoft Word document that will form part of your submission.)
Using the midpoints formula presented in the textbook, calculate the price elasticity coefficient for each price level, starting with the coefficient for the $4 to $6 level. For each coefficient, indicate each type of elasticity: elastic demand, inelastic demand, or unitary demand. Post your answers into the table, Figure 1.
Assume that the income of consumers changes by 10%, and as a result the quantity demanded for Good A changes by 8%. What is the income elasticity of demand for Good A? What does this mean for your company?
Assume that the price of competing Good B decreases by 5% and as a result, the quantity demand for Good A decreases by 8%. What is the cross-price elasticity for your product? What type of goods are Good A and Good B?
Figure 1: The Demand Schedule for Barbeque Dinners
Price
Quantity Demanded
Total Revenue
Elasticity Coefficient
Elastic or Inelastic
$4
100
__________
XXXX
XXXX
6
80
__________
__________
__________
8
60
__________
__________
__________
10
40
__________
__________
__________
12
20
__________
__________
__________
14
1
__________
__________
__________
You are given the following scenarios for consideration. Select any two for your response.
Scenario 1: Assume that the government imposed a price ceiling on gasoline in order to prevent prices from getting too high. What are the economic implications of this action in the gasoline markets? Use graphs as needed and explain your answers thoroughly.
Scenario 2: Assume that the government imposed a price floor on wages (minimum wage) in order to make sure that workers can earn a living wage. Is this a price floor? What are the economic implications of this action in the labor markets? Use graphs as needed and explain your answers thoroughly.
Scenario 3: What are the gains and losses of international trade? What happens when tariffs are imposed, in terms of the importing and exporting countries? Use graphs as needed and explain your answers thoroughly.
Scenario 4: If the government doubled the tax on gasoline, would the tax revenues increase or decrease? Why? Use graphs as needed and explain your answers thoroughly.
Deliverables:
Using the scenarios above, prepare a 2-3 page Microsoft Word document that addresses 2 of the above scenarios and meets APA standards.
Include a summary section in your report that contains 5-7 bullet points identifying your major findings or conclusions of your paper.
Submit the summary section as your initial post in the Discussion Area by the due date assigned. Include the full report as an attachment to your posting.
Continue your discussions until the end of the week by commenting on at least two other submissions by your peers, identifying the strengths and weaknesses of each post.
All submissions must be original and all resources must be properly acknowledged.
Required: Part 2
Prepare an analysis by answering the above-noted questions. Your analysis will consist of two documents as follows:
Microsoft Word document: Questions 1-5, 7-10.
Microsoft Excel worksheet: Question 6
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