ECON 1000 Lecture 4: Lecture 4 Notes

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11 Feb 2017

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Something that are less responsive (things we need to buy no matter what)= oil or gasoline. Inelastic, doesn"t make sense to lower prices, so increase price and increase revenue. Goods that we don"t want to consume when income increases because it is an income inferior good for us. Substitutes, products used in place of other products. Cross price elasticity= positive for substitute, increasing the price of coke means that. Precise estimate of demand and supply and we can relate it to total revenue and enhance your profit. Clean air and water may be elastic for some people. Less than one= inelastic; more than one= elastic. Short run period= less than a year (not a lot of choice, relatively inelastic because not a lot of substitutes) Long run period= more choices, shop around and more choices, more elastic. You know that when supply decreases, the equilibrium price rises and the equilibrium quantity decreases.

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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.

14. The demand curve for a typical good has A. a negative slope because some consumers switch to other goods as the price of the good rises. B. a negative slope because the supply of the good rises as demand rises. C. a negative slope because the good has less "snob appeal" as its price falls. D. an inverse slope because as the price goes up, the good has more profitability. E. a positive slope because the price is a clear indicator of need.

25. The demand for computers has risen dramatically at the same time that the unit cost of production has decreased. As a result, we can expect A. a decrease in price and no predictable impact on output. B. a definite decrease in price and increase in output. C. an increase in output with no predictable change in price. D. no predictable changes in either price or output.

39. The local symphony recently raised its price for tickets to their summer concerts in the park. At the end of the summer season, the symphony was surprised to see that total revenue had actually decreased. The reason was that the elasticity of demand for tickets was

		A. unit elastic.
		B. inelastic.
		C. elastic.
		D. Not enough information is given.

turquoisefish830

""Please answer with simple explanations""""Please answer with simple explanations""""Please answer with simple explanations""""Please answer with simple explanations""""Please answer with simple explanations""""Please answer with simple explanations""

1. Which of the following is not characteristic of the demand for a commodity that is elastic?

a. The relative change in quantity demanded is greater than the relative in price

b. Buyers are relatively sensitive to price changes

c. Total revenue declines if price is increased

d. The elasticity coefficient is less than one

2. Suppose the price elasticity of demand for bread is 0.20 if the bread falls by 10 percent, the quantity demanded will increase by:

a. 2 percent and total expenditures on bread will rise

b. 2 percent and total expenditures on bread will fall

c. 20 percent and total expenditures on bread will fall

d. 20 percent and total expenditures on bread will rise

3. If a consumer is equilibrium, an increase in money income will:

a. Move him to a new equilibrium on a lower indifference curve

b. Make his indifferent curves steeper, but will not alter the equilibrium position

c. Have no effect on the equilibrium position because product prices have not change

d. Move him a new equilibrium on a high indifferent curve

4. The larger the coefficient of price elasticity of demand for a product, the:

a. Larger the resulting price change for an increase in supply

b. More rapid the rate at which the marginal utility of that product diminishes

c. Smaller the resulting price change for an increase in supply

5. A manufactures of frozen pizzas found that total revenue decreased when price was lowed from $5to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

a. The demand for pizza is elastic above $5 and inelastic below $5

b. The demand for pizza is elastic both above and below $5

c. The demand for pizza is inelastic above $5 and elastic below$5

d. $5 is not the equilibrium price of pizza

6. The elasticity of demand for a product is likely to be greater

a. if the product is necessity, rather than a luxury

b. the greater the amount good of time over which buyers adjust to a price change

c. The smaller the proportion of one

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ECON 1000 Lecture 4: Lecture 4 Notes

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