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

Statistical signigicance, A study of 86 savings and loan associations in si...

A study of 86 savings and loan associations in six northwestern states yielded the following cost function. I''ve been given the following data; C=2.38- .006153Q1 + .000005359Q2 +

Concept of isocost, The concept of isocost In the use of resources, fi...

The concept of isocost In the use of resources, firms are faced with opportunity cost.  For every addition of say capital, they must forego a unit of say labour. Expositio

Price elasticity and marginal revenue, The most significant uses of the pri...

The most significant uses of the price elasticity of demand, used specifically in business decision-making. It refer to the relationship between price elasticity and the marginal c

What are the forecasting techniques, Write the forecasting techniques ...

Write the forecasting techniques There are many forecasting techniques available to person assisting the business in planning its sales. Take for instance a forecasting metho

Derevatives ., how to solve problems using derivatives ?

how to solve problems using derivatives ?

Mba assignment, what is the role of managerial economics in running a busin...

what is the role of managerial economics in running a business?

Asset market theory in environment and development, what is asset market th...

what is asset market theory theory in environmental economics?

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