ECO 1104 Lecture Notes - Lecture 5: Demand Curve, Midpoint Method, Horse Length

37 views6 pages

blackrat919

5 Jul 2017

School

Department

Course

Professor

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

3363410481 and 38221 others unlocked

ECO 1104 Full Course Notes

Verified Note

16 documents

Document Summary

To measure how much consumers respond to changes in these variables, economists use the concept of elasticity. Elasticity: a measure of the responsiveness(cid:523) (cid:524) of quantity demanded or quantity supplied to one of its determinant. Price elasticity(cid:523) (cid:524) of demand: a measure of how much the quantity demanded of a good responds to a change in the price of that good. Example: suppose a (cid:883)(cid:882)% increase in the price of an ice-cream cone causes the amount of ice cream you buy to fall by (cid:884)(cid:882)%. The elasticity is (cid:884) means that the change in the quantity demanded is proportionately twice as large as the change in the price. )f you want calculate the price elasticity of demand between two points on a demand curve. The elasticity from point a to point b seems different from the elasticity from point b to point a.

Related Questions

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

a) What is the advantage of using the price elasticity rather than the slope of the demand curve or its inverse to measure the responsiveness in the quantity demanded of a commodity to a change in its price?

b) Why and how is the formula for arc price elasticity of demand different from the formula for point price elasticity of demand?

lemonsea-lion739

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.

ECO 1104 Lecture Notes - Lecture 5: Demand Curve, Midpoint Method, Horse Length

ECO 1104 Full Course Notes

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO 1104 Chapter Notes - Chapter 5: Demand Curve, Inferior Good, Normal Good

ECO 1104 Chapter 5: Chapter 5

ECO 1104 Lecture Notes - Lecture 6: Negative Number, Demand Curve, Eaves

Related Questions