ECN 104 Lecture Notes - Lecture 8: Demand Curve

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cyanscorpion985

24 Dec 2015

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Price elasticity of demand ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign). Responsiveness: large elasticity = less ppl buy, when one changes, how does it effect the other. % change in price change in quantity demand initial quantity demanded x 100. % change in = quantity demand x 100. %change in price = %change price initial price change in quantity demanded. __________initial quantity demanded________ change in price initial price. Why does it matter whether demand is unit-elastic, inelastic, or. Elastic: predicts how changes in the price of a good will affect the total revenue earned by producers from the sale of that good. Infinity: demand curve, supply curve, steep = low l. Each unit sell at a hirer price. Price elasticity of demand is determined by: whether close substitutes are available, whether the good is a necessity or a luxury.

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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.

interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

quantity effect

total revenue

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

In this question, we will determine the price elasticity of demand using both the coefficient of elasticity and the total revenue test.

Use the demand schedule in the table below to answer the following questions.

Quantity Demand	Price
10	200
20	150
30	100
40	50
50	25

a) Calculate the total revenue for each row in the demand schedule. indicate whether total revenue increases or decreases between each row int eh demand schedule. use the total revenue test to classify each price/quantity change as elastic, inelastic, or uni-elastic.

b) calculate the own price-elasticity coefficient for each row in the demand schedule. use the coefficients you calculate to classify each price/quantity change as elastic, inelastic, unit elastic.

in your answer it will be useful to recall that the midpoint formula for percentage change is:

%change midpoint = (final - initial) / ((finial + initial)/2)

and own price elasticity can be calculated by using the formula

Ed= (percentage change in quantity demand of product x) / (percentage change the in the price of product x)

fuchsiacoyote513

ECN 104 Lecture Notes - Lecture 8: Demand Curve

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