01:220:102 Lecture Notes - Lecture 7: Midpoint Method, Demand Curve, Negative Number

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21 Feb 2017

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Price elasticity of demand: ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve. Calculate percent change in quantity demanded and percent change in price. (change in quantity demanded / initial quantity demanded) x 100 = % change in quantity demanded. (change in price / initial price) x 100 = % change in price. (% quantity demanded / % price) = price elasticity of demand. Price and quantity demanded move in opposite directions so price elasticity of demand is negative number but usually report its absolute value. Larger price elasticity, more responsive quantity demanded is to price. Inelastic demand: small response of quantity demanded to price. Midpoint method: technique for calculating the percent change; calculate changes in a variable compared with the average, or midpoint, of the starting and final values.

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1. __________________ A measure of consumersâ 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.

coffeehornet269

a. If a 10 percent increase in price decreases the quantity demanded by 12 percent, the price elasticity of demand is ____________.

b. The price of strawberries falls from $1.50 to $1.00 per carton and the quantity demanded goes from 100,000 to 200,000 cartons. Calculate the price elasticity of demand and interpret it in words.

c. At the present level of consumption, 4,000 movie tickets, and at the current price, $5 per ticket, the price elasticity of demand for movie tickets is 1. Calculate the percentage by which the owners of movie theaters must reduce the price in order to sell 5,000 tickets.

d. The price elasticity of demand for ice-cream sandwiches is 1.2 at the current price of $0.50 per sandwich and the current consumption level of 100,000 sandwiches. Calculate the change in the quantity demanded when the price rises by $0.05.

e. Calculate the price elasticity of supply for web-design services when the price per hour rises from $100 to $150 and the number of hours transacted increases from 300,000 to 500,000. Is supply elastic, inelastic, or unit elastic?

crimsonhamster810

Calculating the price elasticity of demand - A step-by-step guide

Suppose that during the past year, the price of a laptop computer fell from $2,950 to $2,450. During the same time period, consumer sales increased from 430,000 to 619,000 laptops.

1. Calculate the elasticity of demand between these two price quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.)

a. 36.03%

b. 18.02%

c. 277.51%

Price

a. -18.52%

b.-540%

c. -9.26%

Step 1: Fill in the appropriate values for original quantity, new quantity, original price, and new price.

Step 2: Calculate the average quantity by adding the original quantity and the new quantity, and then dividing by two. Do the same for the average price.

Step 3: Calculate the change in quantity by subtracting the original quantity from the new quantity. Do the same for the price change.

Step 4: Calculate the percentage change in quantity demanded by dividing the change in quantity by the average quantity. Do the same to calculate the percentage change in price.

Step 5: Calculate the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price, ignoring the negative sign.

2. Using the midpoint method, the elasticity of demand for laptops is about

a. 0.051

b. 0.97

c. 1.95

d. 3.89

peachmosquito810

01:220:102 Lecture Notes - Lecture 7: Midpoint Method, Demand Curve, Negative Number

01:220:102 Full Course Notes

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