ECON 103 Lecture Notes - Price Elasticity Of Demand, Normal Good

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coralgoose33

19 Apr 2013

School

Simon Fraser University

Department

Economics

Course

ECON 103

Professor

Vera Lantinova

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Document Summary

Before studying elasticity, it is useful to recall what the slope of a straight line is and how to find it: Elasticity is a property of demand and supply. If demand or supply are said to be elastic, it means that percentage change in qd or qs is greater than percentage change in price. If demand or supply are said to be inelastic, it means that percentage change in qs or qd is less than percentage change in price. Based on necessities commodities: elasticity is independent of the units of measurement. Let"s illustrate elastic and inelastic demand and supply with diagrams: Definition: it is a unites-free measurement of the responsiveness of percentage change in qd / percentage change in price. Ped refers to responsiveness of change in qd of a good due to change in its own price. Inelastic means:percenatge chage in qd is less than price. Elastic means:percenatge change in qd is greater than price.

Related Questions

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.

Chuck, Michael and Hakeem are three retired basketball players. They determine that in Madison there is demand for private basketball coaching. The demand and supply curves for private basketball coaching are Qd = 50 - 0.5 P and QS = P-10 respectively.

(1) Find the equilibrium price and quantity

(2) What is the price elasticity of demand at the equilibrium calculated in part (1)? Is demand for basketball coaching elastic or inelastic?

(3) Calculate the price elasticity of demand on the segment (arc) of the demand curve between the prices of $20 and $40

(4) What is the price elasticity of supply calculated at the equilibrium calculated in part (2)? Is the supply of basketball coaching elastic or inelastic?

coffeehare786

In this question, we will determine the price elasticity of demand using both the coefficient of elasticity and the total revenue test.

Use the demand schedule in the table below to answer the following questions.

Quantity Demand	Price
10	200
20	150
30	100
40	50
50	25

a) Calculate the total revenue for each row in the demand schedule. indicate whether total revenue increases or decreases between each row int eh demand schedule. use the total revenue test to classify each price/quantity change as elastic, inelastic, or uni-elastic.

b) calculate the own price-elasticity coefficient for each row in the demand schedule. use the coefficients you calculate to classify each price/quantity change as elastic, inelastic, unit elastic.

in your answer it will be useful to recall that the midpoint formula for percentage change is:

%change midpoint = (final - initial) / ((finial + initial)/2)

and own price elasticity can be calculated by using the formula

Ed= (percentage change in quantity demand of product x) / (percentage change the in the price of product x)

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ECON 103 Lecture Notes - Price Elasticity Of Demand, Normal Good

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