Estimate the price elasticity coefficient
Estimate the price elasticity coefficient Macroeconomics
Given below is the demand schedule for books per year for a given family. Use this data to answer the following questions.
| Price elasticity of demand |
Number of books demanded |
Price per book |
Total revenue |
| |
0 |
$20 |
|
| |
10 |
18 |
|
| |
20 |
16 |
|
| |
30 |
14 |
|
| |
40 |
12 |
|
| |
50 |
10 |
|
| |
60 |
8 |
|
| |
70 |
6 |
|
| |
80 |
4 |
|
| |
90 |
2 |
|
| |
100 |
0 |
|
- Compute the coefficient of price elasticity for the price ranges given in the schedule and complete the first column of the table.
- What do you notice about the algebraic sign of the values you have just computed? Why is this so?
- Break the demand schedule into the three ranges of the price-elasticity of demand. (You can only approximate the three ranges.)
- Fill the total revenue (spending) column.
- How does total spending vary with the price of books in the elastic range? Why?
- How does total spending vary with the price of books in the inelastic range?
- Total spending attains a maximum value approximately in which range of price elasticity?
- Graph the demand curve for books. Explain why the price-elasticity of demand is not equal to the slope of a demand curve.
Interpret the coefficient of the price elasticity that you computed for the seventh price range- $8 to $6.
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