ECON102 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Demand Curve

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greenelephant991

21 Mar 2016

School

University of Waterloo

Department

Economics

Course

ECON102

Professor

Wokia Kumase

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The price elasicity of demand is a units-free measure of the responsiveness of the quanity demanded of a good to a change in its price when all other inluences on buying plans remain the same. It is the magnitude, or absolute value, or the price elasicity of demand that tells us how responsive the quanity demanded is. Perfectly inelasic demand means that the quanity demanded remains constant when the price changes and the price elasicity of demand is zero. Unit elasic demand means that the percentage change in quanity demanded equals the percentage change in price and the price elasicity is 1. Inelasic demand means that the percentage change in the quanity demanded is less than the percentage change in the price and the price elasicity is between 0 and 1. Perfectly elasic demand means that the quanity demanded changes by an ininitely large percentage in response to a iny price change and the price elasicity is ininity.

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interval (or arc) elasticity

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price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

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point elasticity

price effect

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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

If the percentage change in the quantity demanded of a good is less than the percentage change in price, the price elasticity of demand is:

A) Elastic

B) Inelastic

C) Perfectly inelastic

D) Unitary elastic

byzantiummole828

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.

ECON102 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Demand Curve

ECON102 Full Course Notes

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