ECON10004 Lecture Notes - Lecture 1: Price Floor, Price Ceiling, Price Controls

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tealcattle862

25 Aug 2018

School

University of Melbourne

Department

Economics

Course

ECON10004

Professor

All

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Elasticity determinants: elasticity measures the responsiveness of the quantity demanded (or supplied) to their, the concept of elasticity helps us analyse how buyers and sellers respond to the market conditions. It allows us to make more precise statements: we can speak not only the direction but also the magnitude of the changes in market prices and quantities. It provides a units free measure: alows us to make comparisons across products with different attributes. Price elasticity of demand: measures the responsiveness of quantity demanded to change in price. It is commonly expressed as percentage change in quantity demanded per percent change in price: algebraically. Inelastic: (cid:882)<

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Discussion #1

The law of demand states that a fall in the price of a good raises the quantity demanded, and the increase in price leads to a decrease in quantity demanded. The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price, and the percentage change in quantity demanded is greater than the percentage change in price. Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price, which indicates that the percentage in price is greater than the percentage in quantity demanded.

However, the extent of responsiveness of quantity demanded to a change in price depends on the nature of a particular good or service in the market. The price elasticity of demand partly depends on the availability of close substitutes. When a large number of substitutes are available, consumers respond to a higher price of a good by buying more of the substitute goods and less of the relatively more expensive good. In addition, goods or services that are considered necessities tend to have less elastic (more inelastic) demand, whereas goods or services that are considered luxuries have more elastic (less inelastic) demands.

Explain why the demand for the good or service provided by the organization you work for is elastic or inelastic. How does this influence pricing decisions?
Provide examples on how the availability of close substitutes affects price elasticity of demand.
Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

Please answer ALL bulletins and place the answers under the correct bulletin.

1. The concept of price elasticity of demand measures:

a. the slope of the demand curve.

b. the number of buyers in a market.

c. the extent to which the demand curve shifts as the result of a price decline.

d. the sensitiveness of quantities demanded to price changes.

2. When the percentage change in price is less than the resulting percentage change in quantity demanded:

a. demand is elastic.

b. demand is inelastic.

c. demand is unit elastic.

d. none of the above.

3. The elasticity of demand:

a. will be the same at each price-quantity combination on a stable demand curve.

b. tends to be elastic in high-price ranges and inelastic in low-price ranges.

c. tends to be inelastic in high-price ranges and elastic in low-price ranges.

d. is infinitely large for a perfectly inelastic demand curve.

4. Suppose that as the price of Y falls from $2.00 to $1.80 the quantity of Y demanded increases from 110 to 121. It can be concluded that the price elasticity of demand is: _______.

5. Total revenue rises as the price of a good increases if price elasticity of demand is:

a. unitary elastic

b. perfectly inelastic.

6. The demand for such products as salt, bread, and electricity tend to be:

a. relatively price elastic.

b. relatively price inelastic.

c. of unit price elasticity.

d. perfectly price elastic.

coffeeelephant81

Please find the formula result to determine elasticity for gas. Assuming some numbers that assert let say; 5% decrease in quantity demanded, when prices increase by say 10%. Then it would be (Price Elasticity of Demand = % change in Q / % change in P) = ? Then Gas Elasticity = 5% / 10% = 0.50 That is less than one meaning inelastic by Economists among us.

Please explore the other four categories to be able to determine your chosen firm product (gasoline) elasticity in the same way. Please explain the determinants of elasticity in addition would tax on gasoline curb its negative externalities. .

ECON10004 Lecture Notes - Lecture 1: Price Floor, Price Ceiling, Price Controls

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