šŸ·ļø LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION ā†’
Log in
HomeClass Notes1,200,000CA670,000

ECON101 Lecture Notes - Lecture 5: Demand Curve

38 views2 pages
School
University of Alberta
Department
Economics
Course
ECON101
Professor
Gordon Lee

For unlimited access to Class Notes, a Class+ subscription is required.

m4cle4ngoodf3llow and 39493 others unlocked
ECON101 Full Course Notes
99
ECON101 Full Course Notes
Verified Note
99 documents

Document Summary

Measures the responsiveness of quantity demanded to a change in the price. D = (% change in quantity demanded) (% change in price) Size is influenced by: the number of substitutes. The more substitutes good a has, the more consumers can respond to a change in the price of good a. The more elastic the demand for good a: time. The more time consumers have, the more they can respond to a change in price. The more elastic demand is: whether the good is a necessity or a luxury. The demand for a luxury is more elastic than the demand for a. Total revenue rule necessity: if demand is elastic, total revenue moves in the opposite direction as price. Demand decreases due to increase in price: if demand is inelastic, total revenue moves in the same direction as price. Price increase = total revenue increase: if demand is unit elastic, total revenue does not change as price changes.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ECON101 Lecture Notes - Lecture 9: Brand Loyalty
harlequindinosaur217
ECON101 Lecture Notes - Lecture 4: Root Mean Square, Normal Good, Demand Curve
ECON101 Lecture Notes - Lecture 5: Demand Curve, Inferior Good, Normal Good
brownsheep450

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.

interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

quantity effect

total revenue

unitary elastic demand

1. __________________ A measure of consumersĆ¢Ā€Ā™ sensitivity or responsiveness to changes in the price of a good or service.

2. ___________________ When the percentage change in price (in absolute value) is more than the percentage change in quantity demanded (in absolute value).

3. ___________________ When the percentage change in quantity demanded (in absolute value) is more than the percentage change in price (in absolute value).

4. ___________________ When the percentage change in quantity demanded (in absolute value) is just equal to the percentage change in price (in absolute value).

5. ___________________ Total amount paid to a producer for a good or service P * Q.

6. ___________________ The effect on total revenue of a change in price, holding quantity constant.

7. ___________________ The effect on total revenue of a change in quantity, holding price constant.

8. ___________________ An elasticity calculated over an interval of a demand curve or demand schedule.

9. ___________________ Elasticity at a specific price or point on a demand curve.

10. ___________________ A measure of how responsive quantity demanded is to a change in income, all other things constant.

11. ___________________ A measure showing how responsive the quantity demanded of one good is to changes in the price of another good, other factors constant.

12. ___________________ The additional revenue received by producing and selling one more unit of output.

13. ___________________ Units of output that could have been sold at a higher price had the firm not lowered its price to sell additional (marginal) units.

Consider some determinants of the price elasticity of demand:

  • The availability of close substitutes
  • Whether the good is a necessity or a luxury
  • How broadly you define the market?
  • The time horizon being considered
Ā 

A good without any close substitutes is likely to have relatively ___________(inelastic/elastic) demand since consumers cannot easily switch to a substitute good if the price of the good rises.

A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand?

A. Diamond necklace

B. A heart value for heart attack victims

The price elasticity of demand for good also depends on how you define the good.

Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between.

Categories Most Elastic In Between Least Elastic
Food Ā  Ā  Ā 
Red Bell Peppers Ā  Ā  Ā 
Vegetables Ā  Ā  Ā 
Ā 

The price elasticity of demand is also affected by the given time horizon.

If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public transportation. Therefore, the demand for gasoline is__________ (less, more, no more, nor less) elastic in the short run than in the long run.

Ā