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1. You will need to thoroughly explain elasticity. You are expected to cover issues such as: a. What is it? Elasticity is how the demand or supply curve’s change to a change in the product. Whether it be price, quantity or another factor in the market. There are different elasticity calculations that can be used. Price elasticity of demand is the % change in quantity demanded / % change in price. Price elasticity of supply is the % change in quantity supplied / % change in price. Income elasticity of demand is the % change in demand of a product / % change in the consumer’s income. You are also able to calculate the change in price if a good that is related to your product using the cross-price elasticity of demand. This calculation is % change in demand of your product / % change in the price of a related good. b. Why is it used and why is it important? The elasticity calculations are used to see how your product’s demand reacts to changes in the market. It allows you to analyze your place in the market and lets you make business decisions for what price you want to charge for your product to how much of your product you want to be on the self. Understanding these calculations will help your business succeed.
Scenario 2.

The current price, paid by businesses, for your widget is $3.00. The current quantity you sell to various businesses is 150,000 per month. You decide to cut the price of your widget from $3.00 to $2.70. You expect that the quantity you will be willing and able to provide to your customers will decrease from 150,000 to 138,750 per month.

I. Elasticity of supply measures the percentage change in supply relative to the percentage change in price.

A. Es=% ∆ Qs% ∆ P

Es = 150000-1387501500003.00-2.703.00

Es =150000-1387500150000 x (3.00-2.703.00)

Es=150000-13875003.00-2.70 x (3.00150000)


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