Log in
HomeStudy Guides420,000US230,000

ECN 101 Study Guide - Midterm Guide: Ice Cream, Luxury Goods, Midpoint Method

59 views6 pages
plumlouse412
13 Feb 2020
School
Syracuse University
Department
Economics
Course
ECN 101
Professor
Eugene Liu

For unlimited access to Study Guides, a Grade+ subscription is required.

kazasrikar and 38298 others unlocked
ECN 101 Full Course Notes
23
ECN 101 Full Course Notes
Verified Note
23 documents

Document Summary

Definition: how much the quantity demanded responds to a change in price. More elastic (easier for consumers to switch from one good to another) Butter and margarine: elastic (can be substituted) Goods tend to have more elastic demand over time. Gas grice increases but demand drops only slightly. Over time demand will decrease because people will move closer to work, use public transportation, etc. Demand curves and price elasticity of demand. Inelastic demand: increase in price = increase in total revenue. Elastic demand: increase in price = decrease in total revenue. Definition: measures how the quantity demanded of one good responds to a change in the price of another good. Sign and magnitude of cross-price elasticity of demand. Definition: measures how much the quantity supplied responds to change in price. It is easy to increase production if there is a shift in demand. If production of goods can be varied, supply is more elastic.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers

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.

1. Determinants of the price elasticity of demand

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

A good without any close substitutes is likely to have relatively inelastic or elastic demand since consumers cannot easily switch to a substitute good if the price of the good rises?


2. 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. Amputation procedures for diabetes sufferers

 

3. 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        
Red bell peppers        
Vegetables        

 

4. 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 gasoline demand is _______ elastic in the short run than in the long run.

a. less

b. more

c. no more, no less

 

 

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
 

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      
Red Bell Peppers      
Vegetables      
 

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.