Log in
HomeClass Notes1,200,000CA670,000

ECO101H1 Lecture Notes - Lecture 6: Dialysis, Toothpaste, Demand Curve

16 views5 pages
School
UTSG
Department
Economics
Course
ECO101H1
Professor
James Pesando

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

elizabethkandelaki and 40134 others unlocked
ECO101H1 Full Course Notes
98
ECO101H1 Full Course Notes
Verified Note
98 documents

Document Summary

You sell sparkling water, which you obtain from your own spring at no cost. You are selling the water for per bottle. Since your costs are zero, your profit equals your total revenue (number of bottles sold times price per bottle) Question to increase your total revenue, should you increase the price above . If you raise the price: customer who continue buy your water would pay more (thus, increasing total revenues) But: you would have fewer customers due to the law of downward-sloping demand (thus, reducing revenues) Insight: we need more information about the demand curve in order to answer the question. Key concept: elasticity of demand (price) elasticity of demand. Definition: percent change in quantity demanded / percentage change in price (percent change in qd) divided by (percent change in price) Measures responsiveness of quantity demanded to a change in price. % delta quantity demanded = 200/ [(1100+900)/2] * 100.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related Documents

ECO101H1 Lecture Notes - Lecture 6: Demand Curve, Dialysis, Toothpaste
roseyellowjacket50
ECO101H1 Lecture Notes - Toothpaste, Demand Curve, Lincoln Near-Earth Asteroid Research
brownraven248
ECO101H1 Lecture Notes - Lecture 6: Demand Curve, Margarine, Lincoln Near-Earth Asteroid Research
indigolion451

Related Questions

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

Β 

Β 

Β 

Β 

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)

Question 1

  1. If economic profits are zero

    accounting profits is less than the cost of capital.

    accounting profit is just covering the cost of capital.

    the cost of capital is negative.

    the entrepreneur should go to his/her next best alternative.

3 points

Question 2

  1. Markets provide

    information.

    prices.

    incentives.

    all of these choices.

3 points

Question 3

  1. The entrepreneur is always searching for

    positive profit.

    normal profit.

    accounting profit.

    economic profit.

3 points

Question 4

  1. Social regulations can create

    a more competitive market place.

    network externalities.

    a lower HHI.

    barriers to entry.

3 points

Question 5

  1. According to economic theory, profits are maximized where

    total revenue equals total cost.

    marginal revenue equals marginal cost.

    price and average cost are equal.

    where marginal product and average cost are equal.

3 points

Question 6

  1. Brand names help

    create commodities.

    maintain market power.

    create competition.

    keep economic profits at zero.

3 points

Question 7

  1. Entry of new firms causes

    accounting profits to go to zero.

    market share to grown.

    economic profits to go to zero.

    total revenue to be maximized.

3 points

Question 8

  1. Fixed costs

    do not vary with output

    vary with output

    do not vary with price

    vary with price

3 points

Question 9

  1. Variable costs

    do not vary with price.

    do not vary with output.

    vary with price.

    vary with output.

3 points

Question 10

  1. Value maximization means

    that managers make decision so as to increase the long-run market value of the financial claims on the firm.

    that a firm should make products that have the highest price.

    that managers make decision so as to increase the short-run market value of the financial claims on the firm.

    all of these choices.

3 points

Question 11

  1. A manager can determine if her product is viewed as a normal good or an inferior good by considering

    price elasticity.

    cross elasticity.

    income elasticity.

    advertising elasticity.

3 points

Question 12

  1. If demand is perfectly elastic,

    the smallest increase in price will cause quantity demanded to fall to zero.

    the smallest increase in price will cause demand to fall to zero.

    the smallest increase in price will cause quantity demanded to fall.

    the smallest increase in price will cause demand to fall.

3 points

Question 13

  1. If demand is perfectly elastic, then

    demand and price are inversely related.

    quantity demanded and price are inversely related.

    the demand curve is a vertical line.

    the demand curve is a horizontal line.

3 points

Question 14

  1. If price elasticity is 3.25 then

    for every one percent change in price, there will be a 3.25 percent change in quantity demanded.

    for every one percent change in price, there will be a 3.25 percent change in demand.

    for every one percent change in price, there will be a 32.5 percent change in quantity demanded.

    for every one percent change in price, there will be a .0325 percent change in quantity demanded.

3 points

Question 15

  1. If price elasticity is 3.25, then demand is

    inelastic.

    elastic.

    unitary.

    negative.

From the scenario for KatrinaҀ™s Candies, examine the procedure Herb will use to estimate the "demand model" for this product and comment on the expected price elasticity, income elasticity, and cross price elasticity of demand. That is, do you expect demand to be price elastic or inelastic? Will the income elasticity suggest Katrina Candies is a luxury or a necessary good? And, is there likely to be a strong cross price elasticity with the other products that Herb included in his demand model? Explain your answers. What can you determine about consumer demand for a product whose estimated demand elasticities are as follows: Price Elasticity of demand is -0.85 Income Elasticity of demand is 2.5 Cross Price Elasticity of demand with this product and your product is -2 I would like you to think about this simple formula for predicting the change in total revenue when there is a given percentage change in price. Using the example above, if ED (price elasticity of demand) is -.85, then a 10% increase in price will cause the quantity demanded to fall by 8.5%, (-8.5% / 10% = -.85). The Formula for Predicting % Changes in Total Revenue is: %ΓŽΒ”TR = %ΓŽΒ”Q + %ΓŽΒ”P where TR = Total Revenue, Q is Quantity Demanded and P = price. Using this formula, what would be the % ΓŽΒ” in TR if ED is -.85 and the %ΓŽΒ”P is 10%?