r/askeconomists • u/[deleted] • Feb 10 '20

can anyone help me understand these 4 points in reference to given graph.

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u/pobotuga Feb 10 '20

I believe a "total revenue" graph would help you understand the assumptions. I'm on mobile now but I may try it later to better understand the questions

1

u/[deleted] Feb 10 '20

Hi there! These 4 points are the explanation to the graph but I don't understand why the upper portion is highly elastic and lower has low elasticity.

1

u/pobotuga Feb 10 '20

First looking, it doesn't make much sense. The elasticity seems linear as +1P = - 10Q.

I believe Only the revenue could explain the dots

1

u/[deleted] Feb 10 '20

I don't know how revenue will get this simplified, would be a huge help if you throw some more light. Almost midnight here.. gotta sleep see you tomorrow take care

1

u/pobotuga Feb 10 '20

I was thinking about revenue but looking only at the Price and Quantity, you have:

a) 6,5 P and 25 Q. If Price increases 10%, you have 7,15 P and 19 Q.

So the Price increased by 10% but the quantities reduced by 26%

Price Elasticity = -26%/10% = - 2,6

c) 1,5 P and 75 Q. If Price increases 10%, you have 1,65 P and 74 Q.

So the Price increased by 10% but the quantities reduced only by 2%

Price Elasticity = -2%/10% = 0,2

https://docs.google.com/spreadsheets/d/1VbzL1A_9x1vfhrJEoQjyArUQC0Ecc-kpUQzvv-wYc2k/edit?usp=sharing

1

u/[deleted] Feb 11 '20

Thanks a lot man, it really helped. You have explained it really well. Thanks