Use The Demand Schedule To Answer The Question

Use The Following Demand Schedule To Answer The Question Parts Below

Use the following demand schedule to answer the question parts below. Point Price Quantity Demanded Quantity Supplied A $ B $ C $ D $ E $ F $ G $ H $ I $ J $ Calculate the arc elasticity of demand between each point and its neighbor (that is, from A to B, B to C, etc.) and determine whether each value is price elastic, price inelastic, or unit elastic Calculate the arc elasticity of supply between each point and its neighbor (that is, from A to B, B to C, etc.) and determine whether each value is price elastic, price inelastic, or unit elastic Calculate the arc elasticity of demand between A and F, A and D, and A and B and determine whether each value is price elastic, price inelastic, or unit elastic Calculate the arc elasticity of supply between A and F, A and D, and A and B and determine whether each value is price elastic, price inelastic, or unit elastic

Paper For Above instruction

Introduction

Understanding price elasticity of demand and supply is fundamental in economics, as it measures how responsive quantity demanded or supplied is to changes in price. Calculating the arc elasticity between different points on a demand and supply schedule provides insights into market behavior and helps policymakers and businesses make informed decisions. This paper will analyze the demand schedule provided, compute the arc elasticities of demand and supply between neighboring points, and interpret the elasticity values to classify each as elastic, inelastic, or unit elastic. Additionally, it will assess the elasticity between specific points such as A and F, A and D, A and B for both demand and supply, providing a comprehensive understanding of market responsiveness.

Demand and Supply Schedules

The demand schedule presents a list of quantities demanded at various prices, while the supply schedule lists quantities supplied at those prices. Although the specific numerical values for prices and quantities are not provided in the prompt, the methodology for calculating the elasticities remains consistent. Typically, the midpoint (arc) elasticity formula is used to measure the responsiveness between two points:

\[

E_{d} = \frac{\left( Q_2 - Q_1 \right)}{\left( Q_2 + Q_1 \right)/2} \div \frac{\left( P_2 - P_1 \right)}{\left( P_2 + P_1 \right)/2}

\]

Similarly, the elasticity for supply is calculated using the same formula, replacing demand quantities with supply quantities.

Calculating Arc Elasticity of Demand Between Neighboring Points

To illustrate, assume the prices and quantities are as follows (hypothetical data for demonstration):

Using the midpoint formula, the elasticity between A and B would be:

\[

E_{AB} = \frac{150 - 100}{(150 + 100)/2} \div \frac{8 - 10}{(8 + 10)/2} = \frac{50}{125} \div \frac{-2}{9} = 0.4 \div -0.222 \approx -1.8

\]

The magnitude of 1.8 indicates that demand between A and B is elastic, meaning a 1% decrease in price leads to approximately a 1.8% increase in quantity demanded.

Repeating similar calculations between all neighboring points allows classification:

- Elastic if |E| > 1

- Inelastic if |E|

- Unit elastic if |E| = 1

Calculating Arc Elasticity of Supply

Suppose the supply schedule is as follows:

Similarly, the elasticity between A and B can be computed. For example:

\[

E_{AB}^{S} = \frac{80 - 50}{(80 + 50)/2} \div \frac{8 - 10}{(8 + 10)/2} = \frac{30}{65} \div \frac{-2}{9} = 0.4615 \div -0.222 \approx -2.08

\]

A magnitude greater than 1 indicates elastic supply.

By computing all neighbor pairs' elasticities, we can classify whether supply is elastic, inelastic, or unit elastic at various points.

Elasticity Between Specific Points and Market Behavior

Focusing on the elasticity between points A and F, A and D, and A and B for both demand and supply provides insight into how market responsiveness varies across different price ranges. For example, demand between A and F might show inelasticity if quantities do not change significantly despite large price changes, whereas demand between A and B could be elastic if small price changes lead to large quantity responses.

Similarly, supply elasticities over these ranges help producers determine how responsive their output adjustments are to price changes. If the elasticities are high, small price changes result in significant quantity adjustments, which has implications for market stability and policy interventions.

Discussion and Implications

Understanding these elasticity measures aids in predicting market reactions, formulating taxation policies, and optimizing production strategies. Price elasticity influences tax incidence, as consumers and producers share the tax burden differently depending on elasticity. Additionally, inelastic markets tend to be less responsive to price fluctuations, leading to more stable prices but potentially less efficient resource allocation.

Furthermore, the elasticity between specific points reveals the varying nature of demand and supply along the curve. A demand that becomes less elastic at higher prices implies that consumers are less responsive to price increases, which can be exploited by firms. Conversely, highly elastic demand encourages competitive pricing strategies to attract customers.

The knowledge of supply elasticity informs producers about the feasibility of increasing output without significantly raising costs, especially vital during periods of price volatility. Policy measures, such as subsidies or price controls, also depend heavily on elasticity estimates to avoid unintended consequences like shortages or surpluses.

Conclusion

Calculating and analyzing the arc elasticities of demand and supply across different points on the schedule are essential for understanding market dynamics. Elasticity measures inform decisions for policymakers, businesses, and consumers by highlighting the responsiveness of quantities to price changes. The classifications of elastic, inelastic, or unit elastic influence strategies related to taxation, production, and market regulation. Recognizing the varying sensitivities across different price ranges underscores the importance of precise elasticity calculations in economic analysis and policy formulation.

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