6355 Lecture Notes - Lecture 3: Ceteris Paribus, Price Ceiling, Common Agricultural Policy

46 views4 pages

redcockroach788

20 Jun 2018

School

University of Canberra

Department

University of Canberra

Course

6355

Professor

all

For unlimited access to Class Notes, a Class+ subscription is required.

Week 3 - Elasticity, Market Outcomes and Market Intervention

Elasticity: a measure of how much one economic variable - such as the quantity

demanded of a product - responds to changes in another economic variable

Price elasticity of demand: the responsiveness of the quantity demanded of a good

to change in its price

To calculate price elasticity of demand

Divide the percentage change in the quantity demanded of a product by the

percentage change in its price

Always negative

An increase in price decreases the quantity demanded, ceteris paribus

By convention, the minus sign is ignored

Elastic demand: demand is elastic when the percentage change in quantity

demanded is greater than the percentage change in price

 the price of elasticity is greater than one in absolute value

 Inelastic demand: demand is inelastic when the percentage change in quantity

demanded is less than the percentage change in price

The price elasticity is less than one in absolute value

Unit-elastic demand: demand is unit-elastic when the percentage change in quantity

demanded is equal to the percentage change in price

The price elasticity is equal to one in absolute value



Mid Point Formula

find more resources at oneclass.com

Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Week 3 - elasticity, market outcomes and market intervention. Elasticity: a measure of how much one economic variable - such as the quantity demanded of a product - responds to changes in another economic variable. Price elasticity of demand: the responsiveness of the quantity demanded of a good to change in its price. Divide the percentage change in the quantity demanded of a product by the percentage change in its price. An increase in price decreases the quantity demanded, ceteris paribus. By convention, the minus sign is ignored. Elastic demand: demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price. The price of elasticity is greater than one in absolute value. Inelastic demand: demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price. The price elasticity is less than one in absolute value.

Related Questions

27. Which of the following statements is correct? a. The greater the price elasticity of demand, the more likely the product is a necessity. b. The greater the price elasticity of demand, the smaller the responsiveness of quanti demanded to price. The greater the price elasticity of demand, the greater the percentage change in price over the percentage change in quantity demanded. d. The greater the price elasticity of demand, the greater the responsiveness of quantity demanded to price.

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.

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

6355 Lecture Notes - Lecture 3: Ceteris Paribus, Price Ceiling, Common Agricultural Policy

Document Summary

Get access

Related Documents

6355 Lecture Notes - Lecture 2: Competitive Equilibrium, Marginal Utility, Economic Equilibrium

6355 Lecture Notes - Lecture 2: Real Income, Marginal Utility, Marginal Cost

6355 Lecture Notes - Lecture 6: Marginal Revenue, Deadweight Loss, Rent-Seeking

Related Questions