Elasticity and consumption expenditure, Managerial Economics

Assignment Help:

The relationship between, total expenditure and price elasticity of demand has summed up in the below table:

Table: Elasticity and Consumption Expenditure

Elasticity

(ece)

Price change M

Marginal Expenditure

Total Consumer

Expenditure

ece< 1

Rise

ME < 1

Decreases

Fall

ME > 1

Increases

ece = 1

Rise

ME = 1

Constant

Fall

ME = 1

Constant

ece > 1 R

Rise

ME < 1

Increases

Fall

ME < 1

Decreases

As illustrated in Table above, when ece> 1, for example demand is elastic, an increase in price causes more than proportionate decrease in quantity demanded. Therefore, total expenditure decreases. And, if price decreases quantity demanded increases more than proportionately. Consequently total expenditure increases.

When ece = 1, a rise (or fall) in price causes a proportionate fall (or rise) in quantity demanded leaving total expenditure unchanged.

When ece< 1, it implies when demand is inelastic, a rise in price causes a rise in the total expenditure since demand decreases less than proportionately and a fall in price decreases it as quantity demanded increases less than proportionately.


Related Discussions:- Elasticity and consumption expenditure

Question, what is deadweight loss calculation?

what is deadweight loss calculation?

Limits on the process of bank deposit creation, Limits on the process of ba...

Limits on the process of bank deposit creation On the demand side , there may be a lack of demand for loans, or at least of borrowers who are sufficiently credit worthy .

Explain maximising revenue method, Q. Explain Maximising revenue method? ...

Q. Explain Maximising revenue method? In a number of cases, a firm's demand and cost conditions are such that marginal profits are greater than zero for all levels of productio

Explain about isoquant map, Q. Explain about Isoquant Map? We can label...

Q. Explain about Isoquant Map? We can label isoquants in physical units of output without any difficulty. Because every isoquant signifies a specified level of output it's poss

Increemental principle, asumption and limitation of increemrntal,oppurtunit...

asumption and limitation of increemrntal,oppurtunity cost

Definition of monopoly, 1. Prof. Thomas "Generally the term Monopoly is use...

1. Prof. Thomas "Generally the term Monopoly is used to cover any effective price control, whether of demand or supply of services or goods; hardly it is used to mean a combination

Short-term policies to cure balance of payment deficits, Short-Term Policie...

Short-Term Policies Deflation is a policy of reducing expenditure with the intention of curing a deficit by reducing the demand for imports.  This reduction of expenditure m

Governmental functions, a)  The most well-organized combination of resource...

a)  The most well-organized combination of resources which can be used to make a given level of output is that which:   b)  The enactment of a guaranteed yearly income for al

Opportunity cost, Opportunity Cost This is the amount that is sacrifice...

Opportunity Cost This is the amount that is sacrificed when choosing one activity over the next-best alternative.  In organization, an example of opportunity cost is seen in th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd