Elasticity of Demand
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 Demanded/Percentage Change in Price
Percentage Change in Price = Change in Price/Original Proce * 100
3. Types of Elasticity
a. If %change in Price is < %change in Quantity Demanded = Elastic
b. If %change …
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…ATC1 ATC2.... of the various sized plants frm which the firm might choose.
Diagrams frm notes.
If the number of possible plant sizes is very large the long run average cost curve approximates a smooth curve. Economies of scale followed by diseconomies of scale cause the curve to be U-shaped. Diagram 2 from notes.
Economies of scale and diseconomies of scale:
1. Specialization of labor.
2. Specialization of Management.
3. Easy to use efficient large machines.
Diagrams from notes.
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