ECON 1050 Chapter Notes - Chapter 4: Economic Equilibrium, Negative Number, Normal Good

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olivehyena500

10 Jan 2015

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When supply increases, the equilibrium price falls and the equilibrium quantity increases. The price of elasticity of demand is a unit"s free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans. Notice that we use the average price and average quantity. We do this because it gives the most precise measurements of elasticity at the midpoint between the original price and the new price. Percentages and proportions: elasticity is the ratio of two percentage changes, when we divide one percentage by another, the 100s cancel out. A percent change is a proportionate change multiplied by 100. A unit"s free measure: elasticity is a unit"s free measure because percentage change in each variable is independent of units in which the variable is measured. Ratio of the two percentages is a number without units.

Related Questions

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 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

When the price of good A rises from $180 to $220, the quantity of good A demanded decreases from 250 to 150 units a day, and the quantity of good C demanded increases from 75 to 125 units a day.

From this information, we can determine that _______.

A. the cross elasticity of demand is positive, so the two goods are substitutes

B. the goods are complements because as the price of good A changes so does the quantity demanded of good C

C. good C is a normal good because as the price of good A rises, people switch to good C

D. the cross elasticity of demand is less than 1, so the two goods are substitutes

orchidbee10

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.

ECON 1050 Chapter Notes - Chapter 4: Economic Equilibrium, Negative Number, Normal Good

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