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Q1 Explain Elasticity of Demand Ans Elasticity of demand 1 Elasticity of demand is the sensitivity of the customers to the change in price of a product 2 The degree of elasticity of demand is measured by the coefficient Ed which is Percentage Change in Quantity DemandedPercentage Change in Price Percentage Change in Price Change in PriceOriginal Proce 100 3 Types of Elasticity a If change in Price is change in Quantity Demanded Elastic b If change in Price is infinite change in Quantity demanded Perfectly Elastic c If change in Price is change in Quantity Demanded Inelastic d If change in Price is 0 Change in Quantity Demanded Perfectly Inelastic e If change in Price is change in Quantity Demanded Unit Elasticity Diagrams from Notes 4 Total Revnue Test for Elasticity Total Revnue Unit Price Quantity Sold 1If Price and Total Revenue Change inversely Elastic 2If Price and Total Revenue Change Directly Inelastic 5 On the same demand curve the elasticity is different depending on the location Diagram from notes Reasons 1 Logical 2 Common Sense 6 Determinants of Elasticity 1 Necessary Goods eg Medicines 2 Availability of Substitutes 3 In the long run more Elastic 4 Inexpensive Goods Q2 Explain firms revenue under Perfect Competition Ans Demand for a consumer Price per unitQuantity Purchased Demand for a seller Revenue Per UnitQuantity Sold Types of Revenue AR Average Revenue TR Total Revenue Price Quantity Sold MR Marginal Revenue EXTRA revenue generated by selling an additional unit Under Perfect Competition 1 There are a large number of firms 2 The products are homogenous 3 An individual seller does not have any influence on the
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