ECON 101 Lecture 7: Econ 101 Lec 7

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30 Jan 2017

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Elasticity = how responsive we are to changes in price. Estimates of income elasticity of demand: restaurant meals, margarine inferior, dentist normal inelastic, butter normal good positive. = (cid:882). (cid:884)(cid:882) (cid:4666)(cid:1866)(cid:1858)(cid:1857)(cid:1870)(cid:1867)(cid:1870)(cid:4667: (cid:2159)(cid:2200)(cid:2197)(cid:2201)(cid:2201) (cid:2198)(cid:2200)(cid:2191)(cid:2185)(cid:2187) (cid:2187)(cid:2194)(cid:2183)(cid:2201)(cid:2202)(cid:2191)(cid:2185)(cid:2191)(cid:2202) (cid:2197)(cid:2188) (cid:2186)(cid:2187)(cid:2195)(cid:2183)(cid:2196)(cid:2186) (cid:2184)(cid:2202) (cid:2189)(cid:2197)(cid:2197)(cid:2186)(cid:2201) (cid:2157) (cid:2183)(cid:2196)(cid:2186) (cid:2158)= (cid:4666)%(cid:2185)(cid:2190)(cid:2183)(cid:2196)(cid:2189)(cid:2187) (cid:2191)(cid:2196) (cid:2173) (cid:2197)(cid:2188) (cid:2157) (cid:2186)(cid:2187)(cid:2195)(cid:2183)(cid:2196)(cid:2186)(cid:2187)(cid:2186)(cid:4667) (cid:4666)% (cid:2185)(cid:2190)(cid:2183)(cid:2196)(cid:2189)(cid:2187) (cid:2191)(cid:2196) (cid:2198)(cid:2200)(cid:2191)(cid:2185)(cid:2187) (cid:2197)(cid:2188) (cid:2158)(cid:4667) (cid:1876):(cid:1853)(cid:1868)(cid:1868)(cid:1864)(cid:1857)(cid:1871) (cid:1853)(cid:1866)(cid:1856) (cid:1854)(cid:1853)(cid:1866)(cid:1853)(cid:1866)(cid:1853)(cid:1871) (cid:1853)(cid:1870)(cid:1857) (cid:2201)(cid:2203)(cid:2184)(cid:2201)(cid:2202)(cid:2191)(cid:2202)(cid:2203)(cid:2202)(cid:2187)(cid:2201). (cid:1870)(cid:1855)(cid:1857) (cid:1867)(cid:1858) (cid:1854)(cid:1853)(cid:1866)(cid:1853)(cid:1866)(cid:1853)(cid:1871) (cid:1866)(cid:1855)(cid:1870)(cid:1857)(cid:1853)(cid:1871)(cid:1857)(cid:1871) (cid:1853)(cid:1868)(cid:1868)(cid:1864)(cid:1857) (cid:1871) (cid:1856)(cid:1857)(cid:1865)(cid:1853)(cid:1866)(cid:1856) (cid:1855)(cid:1873)(cid:1870)(cid:1874)(cid:1857) (cid:1871) (cid:1858)(cid:1872)(cid:1871) (cid:1872)(cid:1867) (cid:1872) (cid:1857) (cid:1870)(cid:1859) (cid:1872) qdemanded of apples is. Ex: noodles and soy sauce are compliments cross-price elasticity of higher cross-price elasticity of demand is positive. Cross price elasticity of demand btw 2 goods measures effect of change in one good"s price on the qdemanded of the other good demand is negative: estimates of cross price elasticity of demand. Change in qdemanded of first good resulting from price change of second good. The further away from 0 the more responsive the goods are to eachother the more elastic the goods will be.

Related Questions

Data collected from the economy of Cardtown reveals that a 16% increase in income leads to the following changes:

â¢	A 6% increase in the quantity of chips demanded
â¢	A 14% decrease in the quantity of clubs demanded
â¢	A 29% increase in the quantity of diamonds demanded

Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.)

Good	Income Elasticity of Demand	Normal or Inferior Good
Chips	choose one: -2.67, -0.37, 0.38, 2.67
Clubs	choose one: -1.14, -0.88, 0.88, 1.14
Diamonds	choose one: -1.81, -0.55, 0.55, 1.81

Which of the following three goods is most likely to be classified as a luxury good ?

Chips

Diamonds

Clubs

1. When demand is inelastic, a decrease in price will cause

a. an increase in total revenue.

b. a decrease in total revenue.

c. no change in total revenue but an increase in quantity demanded.

d.no change in total revenue but a decrease in quantity demanded.

2. For which of the following types of goods would the income elasticity of demand be positive and relatively large?

a. all inferior goods

b. all normal goods

c. goods for which there are many complements

d. luxuries

3. Which of the following should be held constant when calculating the income elasticity of demand?

a. the quantity of the good demanded

b. the price of the good

c. income

d. All of the above should be held constant.

4. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

a. positive.

b. negative.

c. either positive or negative. It depends on whether A and B are normal goods or inferior goods.

d. either positive or negative. It depends on whether the current price level is on the elastic or inelastic portion of the demand curve.

5. As the price elasticity of supply increases, the supply curve

a. becomes flatter

b. becomes steeper

c. becomes downward sloping.

d. shifts to the right.

brownsea-lion330

1. Calculate the price elasticity for the following good. State whether the price elasticity of demand is elastic, unit elastic, or inelastic. Will revenue rise, decline, or stay the same with the given change in price? Be sure to show your work. The price of water beds rises from $500 to $600. Quantity demanded falls from 100,000 to 80,000.

2. Calculate the income elasticity of demand for the following good. State whether it is a luxury, a necessity, or an inferior good. Explain. Show your work. As income decreases from $20,000 to $18,000 per year, demand for summer cottages in Vermont decreases from 80 to 75.

3. When the price of ketchup rises by 15 percent, the demand for hot dogs falls by 10 percent. Calculate the cross-price elasticity of demand. Are the goods complements or substitutes?

4. Use the accounts listed below to answer the following questions about the profit of a retail business.

Total Revenue	$80,000
Hired Labor	$30,000
Inventory purchased for resale	$20,000
Interest that the owner could have earned on an alternative investment	$2,000
Income that the owner could have earned by renting the firm

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ECON 101 Lecture 7: Econ 101 Lec 7

ECON 101 Full Course Notes

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