ECON 1001 Lecture Notes - Lecture 3: Midpoint Method, Demand Curve

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byzantiumsalmon307

10 Oct 2018

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Chapter 5 - elasticity and its application (week 3) Price elasticity of demand (ped): a measure of how much the quantity demanded responds to a change in price. * ped = change in qd (%) / change in p (%) Requires midpoint between 2 points on demand curve. * ped = (q2 - q1 / midq) / (p2 - p1 / midp) Slope of a demand curve can be constant, while elasticity cannot. Slope: ratio of changes between two variables. Elasticity: percentage of changes between two variables. Ied = % change in quantity demanded / % change in income. Related to normal vs. inferior goods, and necessities vs. luxuries. Cped = % change in quantity demanded of one good / % change in price of another good. Price elasticity of supply (pes): a measure of how much the quantity supplied responds to changes in the price. Chapter 6 - supply, demand and government policies.

Related Questions

Determine the price elasticity of demand at each quantity demanded using the arc or midpoint formula: Percentage change in quantity demanded =(Q2-Q1)/Q1 divided by percentage change in price= (P2-P1)/P1.

Redo the exercise using price changes of $10 rather than $5.

plumcockroach479

a. Determine the price elasticity of demand at each quantity demanded using the arc or midpoint formula: Percentage change in quantity demanded =(Q2-Q1)/Q1 divided by percentage change in price= (P2-P1)/P1.

b. Redo exercise using price changes of $10 rather than $5.

oliveant927

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 1001 Lecture Notes - Lecture 3: Midpoint Method, Demand Curve

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