ECON 1000 Chapter Notes - Chapter 4: Inferior Good, Normal Good

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Price elasticity: price elasticity of demand demanded of a good to a change in its price when all other influences on buying plans remain the same. : is a unit-free measurement of the responsiveness of the quantity: calculating price elasticity of demand, %chg in quantity demanded / %chg in price. Price of a pizza is . 50 and 9 demanded falls to . 50 and increase to 11 demanded . Price falls but quantity demanded increases by 2 pizzas/hour average price is and average quantity demanded is 10 pizzas/hour. %chg in quantity demanded = %chg quantity / %chg avg. quantity = (2/10) x 100 = 20% %chg in price = %chg price / %chg avg. quantity = (/) x 100 = 5% If the quantity demanded doesn"t change when the price changes, the price elasticity of demand is zero and the good as a perfectly inelastic demand: total revenue and elasticity.

Related Questions

1. In each case below, what is the value of the price elasticity of demand? Is demand perfectly inelastic, inelastic, unit elastic, elastic or perfectly elastic?

a. Price falls by 10%, quantity demanded rises by 8%

b. Price rises by 3%, quantity demanded falls by 3%

c. Price rises by 1%, quantity demanded falls by 5%

d. Price rises by 5%, quantity demanded collapses to zero

e. Price falls by 2%, quantity demanded does not change

taupemule214

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.

ECON 1000 Chapter Notes - Chapter 4: Inferior Good, Normal Good

ECON 1000 Full Course Notes

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