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The price elasticity of demand coefficient is, technically, always negative, but for convenience economists ignore the minus sign. true or false?

Answer

The statement that the price elasticity of demand coefficient is, technically, always negative, but for convenience economists ignore the minus sign is true. The price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price. It is defined as the percentage change in the quantity demanded of a good in response to a one percent change in its price. Economists use the price elasticity of demand coefficient to quantify the degree of responsiveness in the quantity demanded of the good to its price level. As a result, the coefficient is always negative because the demand for a good typically decreases as its price level increases. However, for convenience economists often ignore the minus sign when referring to the coefficient.

What is Price Elasticity of Demand?

Price elasticity of demand is an economic measure of the degree to which the quantity of a good or service demanded is affected by a change in its price. It is calculated as the percentage change in the quantity demanded of a good in response to a one percent change in its price. The price elasticity of demand coefficient is typically negative, as the demand for a good typically decreases as its price level increases.

Why is the Price Elasticity of Demand Coefficient Negative?

The price elasticity of demand coefficient is always negative because the demand for a good typically decreases as its price level increases. This is due to the fact that when the price of a good increases, consumers tend to substitute cheaper alternative goods and services in place of the more expensive good. This in turn causes the quantity demanded of the good to decrease.

Why Do Economists Ignore the Minus Sign?

For convenience, economists often ignore the minus sign when referring to the price elasticity of demand coefficient. This is because the coefficient is always negative and it does not provide any additional information. It is also easier to compare the responsiveness of the demand for different goods and services in terms of their price elasticity of demand when the minus sign is omitted.

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Suppose 20 households in a community have the demand function Q = 2 – 0.001P each for streetlights while 5 other households have the demand function Q = 3 – 0.002P each for streetlights. Here, Q refers to the number of streetlights to erect near their home while P is the unit price of each streetlight. The cost of building each streetlight is GHS 45. a) Assuming each household is making its separate purchase decision, find the market demand function for streetlights for all 25 households b) Assuming each household is making its separate purchase decision, find the equilibrium price and number of streetlights in the community c) Assuming a community association has decided to coordinate this streetlight purchase decision problem. The community leader uses the demand functions to determine how much each household is willing to contribute (willingness to pay) towards the first, second, third, etc streetlight. The first light is purchased only when the sum of individual households’ contributions is at least equal to the marginal cost of streetlights. Find out how many streetlights are purchased for this community in equilibrium.

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