http://www.youtube.com/movie?v=96rYWCfbhGs&feature=mv_e_rel_b http://www.youtube.com/movie/the-train?feature=mv_e_rel http://www.youtube.com/movie?v=DxC4kzW65ww&feature=g-vrec http://www.youtube.com/movie/meri-aashiqui?feature=mv_e_rel http://www.youtube.com/movie/tauba-tauba?feature=mv_e_rel http://www.youtube.com/movie?v=NYDyHOekJLE&feature=g-vrec http://www.youtube.

com/movie/kissing-cousins

10.

Methods of calculating price elasticity of demand?

Answer: (1) Total outlay or Expenditure Method (2) Proportionate or Percentage Method (3) Point Elastic Method (4) Arc Elasticity of Method (5) Revenue Method http://wiki.answers.com/Q/Methods_of_calculating_price_elasticity_of_demand The Price Elasticity of Demand (commonly known as just price elasticity) measures the rate of response of quantity demanded due to a price change. The formula for the Price Elasticity of Demand (PEoD) is: PEoD = (% Change in Quantity Demanded)/(% Change in Price) Calculating the Price Elasticity of Demand You may be asked the question "Given the following data, calculate the price elasticity of demand when the price changes from $9.00 to $10.00" Using the chart on the bottom of the page, I'll walk you through answering this question. (Your course may use the more complicated Arc Price Elasticity of Demand formula. If so you'll need to see the article on Arc Elasticity) First we'll need to find the data we need. We know that the original price is $9 and the new price is $10, so we have Price(OLD)=$9 and Price(NEW)=$10. From the chart we see that the quantity demanded when the price is $9 is 150 and when the price is $10 is 110. Since we're going from $9 to $10, we have QDemand(OLD)=150 and QDemand(NEW)=110, where "QDemand" is short for "Quantity Demanded". So we have: Price(OLD)=9 Price(NEW)=10 QDemand(OLD)=150 QDemand(NEW)=110

To calculate the price elasticity, we need to know what the percentage change in quantity demand is and what the percentage change in price is. It's best to calculate these one at a time. Calculating the Percentage Change in Quantity Demanded The formula used to calculate the percentage change in quantity demanded is: [QDemand(NEW) - QDemand(OLD)] / QDemand(OLD) By filling in the values we wrote down, we get: [110 - 150] / 150 = (-40/150) = -0.2667 We note that % Change in Quantity Demanded = -0.2667 (We leave this in decimal terms. In percentage terms this would be -26.67%). Now we need to calculate the percentage change in price. alculating the Percentage Change in Price Similar to before, the formula used to calculate the percentage change in price is: [Price(NEW) - Price(OLD)] / Price(OLD) By filling in the values we wrote down, we get: [10 - 9] / 9 = (1/9) = 0.1111 We have both the percentage change in quantity demand and the percentage change in price, so we can calculate the price elasticity of demand. Final Step of Calculating the Price Elasticity of Demand We go back to our formula of: PEoD = (% Change in Quantity Demanded)/(% Change in Price) We can now fill in the two percentages in this equation using the figures we calculated earlier. PEoD = (-0.2667)/(0.1111) = -2.4005 When we analyze price elasticities we're concerned with their absolute value, so we ignore the negative value. We conclude that the price elasticity of demand when the price increases from $9 to $10 is 2.4005. How Do We Interpret the Price Elasticity of Demand? A good economist is not just interested in calculating numbers. The number is a means to an end; in the case of price elasticity of demand it is used to see how sensitive the demand for a good is to a price change. The higher the price elasticity, the more sensitive consumers are to price changes. A very high price elasticity suggests that when the price of a good goes up, consumers will buy a great deal less of it and when the price of that good goes down, consumers will buy a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on demand. Often an assignment or a test will ask you a follow up question such as "Is the good price elastic or inelastic between $9 and $10". To answer that question, you use the following rule of thumb:

If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes) If PEoD = 1 then Demand is Unit Elastic If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes) Recall that we always ignore the negative sign when analyzing price elasticity, so PEoD is always positive. In the case of our good, we calculated the price elasticity of demand to be 2.4005, so our good is price elastic and thus demand is very sensitive to price changes. Next: Price Elasticity of Supply DataPrice $7 200 $8 180 $9 150 $10 110 $11 60 Quantity Demanded Quantity Supplied 50 90 150 210 250

http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm How to Calculate Price Elasticity of Demand Price elasticity of demand is the relationship between a change in price and the corresponding change in quantity. It tells you how sensitive the quantity demanded is to a change in price. Businesses look at this very closely because it helps them in their pricing decisions. It also helps in evaluating how much business may be gained or lost when prices are raised or lowered. Instructions 1 Take a typical demand curve and select two points on it. For example, Point A has a price of $15 and a quantity demanded of 15. Point B has a price of $10 and a quantity demanded of 18. 2 Calculate the percentage change in quantity. With two points on the demand curve, take the change in quantity and then divide it by the beginning quantity. Take ( Q2 - Q1 ) / Q1. In the example, Q2 = 18 and Q1 = 15. So the difference between them is 3. Dividing this by 15 gives you a 20 percent. In other words, quantity demanded increased by 20 percent. 3 Calculate the percentage change in price. Take the difference between the two prices and divide it by the beginning price. The formula is ( P2 - P1 ) / P1. Referring back to the example, P2 = $10 and P1 = $15. So the difference between them is $5. Dividing this by 15 gives you a -33 percent. In other words, price decreased by 33 percent.

4 Divide the percentage change in quantity by the percentage change in price. This gives you the price elasticity of demand. In the example, divide the 20 percent increase in quantity by the 33 percent decrease in price.That gives you a price elasticity of demand of -60 percent or -0.60. Tips & Warnings Elastic demand means a small change in price results in a larger change in quantity. Inelastic demand means a small change in price results in a smaller change in quantity. Unit elasticity means a small change in price results in an equal change in quantity. Related Searches http://www.ehow.com/how_4917869_calculate-price-elasticity-of-demand.html

Point-price elasticity
One way to avoid the accuracy problem described above is to minimise the difference between the starting and ending prices and quantities. This is the approach taken in the definition of point-price elasticity, which uses differential calculus to calculate the elasticity for an infinitesimal change in price and quantity at any given point on the demand curve: [14] In other words, it is equal to the absolute value of the first derivative of quantity with respect to price (dQd/dP) multiplied by the point's price (P) divided by its quantity (Qd).[15] In terms of partial-differential calculus, point-price elasticity of demand can be defined as follows: [16] let be the demand of goods as a function of parameters price and wealth, and let be the demand for good . The elasticity of demand for good with respect to price pk is However, the point-price elasticity can be computed only if the formula for the demand function, Qd = f(P), is known so its derivative with respect to price, dQd / dP, can be determined. http://en.wikipedia.org/wiki/Price_elasticity_of_demand#Point-price_elasticity

What is the point elasticity of the demand function p plus 4q equl to 80 at 10 and 400?
To answer this question you must know two things: 1) the point elasticity formula, and 2) the demand equation. 1) the point elasticity formula says: dQ/dP X P/Q is the point elasticity at a price (P) and the corresponding Quantity (Q) -P is the price you are evaluating the elasticity at, and Q is found by evaluating the demand equation at the price (P)

-dQ/dP is the derivative of Q with respect to P 2) The demand equation for this particular problem is: P+4Q=80 The Answer: Step one: differentiate the demand equation with respect to P - to do this you must algebraically solve the demand equation for Q P+4Q=80 4Q=80-P Q=20-0.25P -next you must differentiate with respect to P dQ/dP=-0.25 Step 2: plug derivative into formula -now, refering back to the original formula, you have: -0.25 X P/Q Step 3: Plug in the values for P/Q - in this problem, they want you to evaluate the elasticity at price 10 and price 400 Price at 10: Elasticity(10)= -0.25 X (10/17.5)=-0.4375 or 0.4375 (elasticities are always positive) Now, the step above is very simple, all I did is multiplied the derivative of the demand function by the price over the quantity demanded evaluated at the price by the the demand function. All that is happening is I am following the point elasticity formula outlined at the top. Price at 400: Elasticity(400)=-0.25 X (400/-80)=1.25 And there you have it! Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a range of it. Point Elasticity = (% change in Quantity)/(% change in Price) Point Elasticity = (Q/Q)/(P/P) Point Elasticity = (P/Q)(Q/P) (Q/P) is the derivative of the demand function with respect to P.

Example demand curve: Q = 1,000 - .6P a.) Given this demand curve determine the point price elasticity of demand at P = 80 and P = 40 as follows. i.) obtain the derivative of the demand function when it's expressed Q as a function of P. (Q/P)=-.6 ii.) next apply the above equation to the sought ordered pairs: (40, 976), (80, 952) e = -.6(40/976) = -.02 e = -.6(80/952) = -.05 http://uk.answers.yahoo.com/question/index?qid=20070122080521AAv9R10 Price Elasticity of Demand

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price, with all other factors held constant. Definition The price elasticity of demand, Ed is defined as the magnitude of: proportionate change in quantity demanded -----------------------------------------------------------------------proportionate change in price Since the quantity demanded decreases when the price increases, this ratio is negative; however, the absolute value usually is taken and Ed is reported as a positive number. Because the calculation uses proportionate changes, the result is a unitless number and does not depend on the units in which the price and quantity are expressed. As an example calculation, take the case in which a product's Ed is reported to be 0.5. Then, if the price were to increase by 10%, one would observe a decrease of approximately 5% in quantity demanded. In the above example, we used the word "approximately" because the exact result depends on whether the initial point or the final point is used in the calculation. This matters because for a linear demand curve the price elasticity varies as one moves along the curve. For small changes in price and quantity the difference between the two results often is negligible, but for large changes the difference may be more significant. To deal with this issue, one can define the arc price elasticity of demand. The arc elasticity uses the average of the initial and final quantities and the average of the initial and final prices when calculating the proportionate change in each. Mathematically, the arc price elasticity of demand is defined as: Q2 - Q1 ----------------------( Q1 + Q2 ) / 2

------------------------------P2 - P1 ----------------------( P1 + P2 ) / 2 where Q1 Q2 P1 P2 = = = = Initial quantity Final quantity Initial price Final price

Elastic versus Inelastic E >1 In this case, the quantity demanded is relatively elastic, meaning that a price change will cause an even larger change in quantity demanded. The case of Ed = infinity is referred to as perfectly elastic. In this theoretical case, the demand curve would be horizontal. For products having a high price elasticity of demand, a price increase will result in a revenue decrease since the revenue lost from the resulting decrease in quantity sold is more than the revenue gained from the price increase. E <1 In this case, the quantity demanded is relatively inelastic, meaning that a price change will cause less of a change in quantity demanded. The case of Ed = 0 is referred to as perfectly inelastic. In this theoretical case, the demand curve would be vertical. For products whose quantity demanded is inelastic, a price increase will result in a revenue increase since the revenue lost by the relatively small decrease in quantity is less than the revenue gained from the higher price. E =1 In this case, the product is said to have unitary elasticity; small changes in price do not affect the total revenue. Factors Affecting the Price Elasticity of Demand Availability of substitutes: the more possible substitutes, the greater the elasticity. Note that the number of substitutes depends on how broadly one defines the product. Degree of necessity or luxury: luxury products tend to have greater elasticity. Some products that initially have a low degree of necessity are habit forming and can become "necessities" to some consumers. Proportion of the purchaser's budget consumed by the item: products that consume a large portion of the purchaser's budget tend to have greater elasticity. Time period considered: elasticity tends to be greater over the long run because consumers have more time to adjust their behavoir. Permanent or temporary price change: a one-day sale will elicit a different response than a permanent price decrease.

Price points: decreasing the price from $2.00 to $1.99 may elicit a greater response than decreasing it from $1.99 to $1.98. http://www.quickmba.com/econ/micro/elas/ped.shtml

Marginal revenue
change in total revenue caused by one additional unit of output. It is calculated by determining the difference between the total revenues produced before and after a one-unit increase in the rate of production. As long as the price of a product is constant, price and marginal revenue are the same; for example, if baseball bats are being sold at a constant price of $10 apiece, a oneunit increase in sales (one baseball bat) translates into an increase in total revenue of $10. But it is often the case that additional output can be sold only if the price is reduced, and that leads to a consideration of marginal costthe added cost of producing one more unit. Further production is not advisable when marginal cost exceeds marginal revenue since to do so would result in a loss. Conversely, whenever marginal revenue exceeds marginal cost, it is advisable to produce an additional unit. Profits are maximized at the rate of output where marginal revenue equals marginal cost. http://www.answers.com/topic/marginal-revenue