ECON101 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Greek People'S Liberation Army

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indigomacaw960

30 Oct 2016

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Emanuel Carvalho

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ECON101 Full Course Notes

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Price elasticity of demand - units free measurement of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain constant. The formula for price elasticity of demand is percentage change in quantity demanded divided by percentage change in price. To calculate price elasticity of demand we must know 2 different prices of a commodity. To begin the initial price of a pizza was . 50 and at that point 9 pizzas/hour demanded. When the price falls to . 50/pizza the quantity demanded increases to 11 pizzas/hour. Therefore when the price falls by a dollar the quantity demanded increases by 2 pizzas an hour. Using the average price and average quantity we calculate the elasticity at a point on the demand curve midway between the original point and the new point. Since the original price is . 50 and the new price is . 50 the average price is.

Related Questions

When the price of the pizza was $10.00 for a medium pizza, students at a college consumed 400 pizzas per week. When the price of pizza increased to $30.00 for a medium pizza, students at a college consumed 100 pizzas per week. Calculate the price elasticity of demand for medium pizzas for the students. You must show your work to receive credit for your calculation. If the price of pizza increases by 1%, by what will the percentage change in quantity demanded of pizzas for the students?

violetleopard499

a) What is the advantage of using the price elasticity rather than the slope of the demand curve or its inverse to measure the responsiveness in the quantity demanded of a commodity to a change in its price?

b) Why and how is the formula for arc price elasticity of demand different from the formula for point price elasticity of demand?

lemonsea-lion739

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.

ECON101 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Greek People'S Liberation Army

ECON101 Full Course Notes

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