ECON 101 Lecture Notes - Lecture 13: Negative Number

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greenmarten520

13 Jun 2018

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Estimating Demand:

● line of best fit that shows relation between price and demand

● captures the fluctuation in quantity demanded as a result in changes in prices

○ implies there is a predictable relationship between price and quantity demanded

● output we get from straightforward processes

Generic Linear Function:

● y= bo + b1x1 + b2x2 + … +bnxn

● b0 is a constant

● b1, b2…, bnare coefficients and

● x1, x2…, xn are variables

● example:

○ y=5+3x+2x2

○ if y1 = o and y2 = 0, then y = 5 : if x increases by 1 unit

○ x1 = 10 and y2 = 20, then y = 75

Simple Linear Demand Function:

● Generically: Qd = a + b P

● Where a = intercept on the Qd axis

● b = inverse of the slope

○ we believe b < 0

Price coefficient of the demakkkknd function:

● negative slope implies b<0

● b reflects the sensitivity of demand to changes in the price

○ if demand does not respond significantly to changes in price then b is very small

■ demand curve = relatively steep

○ if demand responds a lot to changes in price than b is large

■ demand curve is relatively flat

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ECON 101 Full Course Notes

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Estimating demand: line of best fit that shows relation between price and demand. Captures the fluctuation in quantity demanded as a result in changes in prices implies there is a predictable relationship between price and quantity demanded. Y= bo + b1x1 + b2x2 + +bnxn. B1, b2 , bnare coefficients and x1, x2 , xn are variables. Y=5+3x+2x2 if y1 = o and y2 = 0, then y = 5 : if x increases by 1 unit. Where a = intercept on the qd axis. B reflects the sensitivity of demand to changes in the price if demand does not respond significantly to changes in price then b is very small. Demand curve = relatively steep if demand responds a lot to changes in price than b is large. Price coefficient in the demand function, b, is a large negative number. Typically the result of the availability of close substitutes for the good.

Related Questions

1) All else being equal, the more important an item is in buyers' budgets, the more elastic is the demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

7) Among the reasons that farmers' incomes are unstable is _____
A) The supply curve for food can shift dramatically rightward or leftward from year to year.
B) The demand for food is elastic
C) The income elasticity for food is very high
D) All of these
E) None of these

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

9) As we move leftward along a straight-line demand curve, the (absolute value of the) price elasticity of demand ____
A) Grows smaller
B) Remains constant at zero
C) Remains constant at a value of one
D) Remains constant and equal to the (absolute value of the) slope of the demand curve
E) Grows larger

10) If a good is normal, we know that______
A) income elasticity is positive
B) The good's price elasticity of demand is positive
C) Demand for the good is elastic
D) Demand for the good is inelastic
E) Income elasticity is negative

11) When the price of a good rise by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand for this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

12) If the price elasticity of demand for a good is negative, we know that the good _____.
A) Obey's the law of demand
B) Is normal
C) Is inferior
D) Violates the law of demand
E) is inelastically demanded

13) Which of the following would you expect to have the greatest (in absolute value) price elasticity of demand?
A) Clothing
B) Pants
C) Blue jeans
D) Levi's Blue jeans
E) All of these answers would have approximately the same price elasticity of demand.

14) The price elasticity of demand for a good is -2.0 When the price of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the goodwill increase
C) Total expenditure on this goodwill fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

turquoiseporpoise766

1) All else being equal, the more imprtant an item is in buyers' budgets, the more elastic is demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

11) When the price of a good rises by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand fort this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

14) The price elasticity of demand for a good is -2.0 When the proce of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the good will increase
C) Total expenditure on this good will fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

carminewildebeest5

PLEASE HELP WITH ONLY THE BOLDED QUESTION THANK YOU

Consider the market for new, single-family homes in New Orleans. The general demand function for new housing in New Orleans is estimated to be Qd =15-2P+0.05M+0.10R where Qd is the monthly quantity demanded, P is the price per square foot, M is average monthly income in New Orleans, and R is the average monthly rent for a three-bedroom apartment in New Orleans. Qd is measured in units of 1,000 square feet per month. 1. New housing in New Orleans is a(n) __________________ (normal, inferior) good. How can you tell from the general demand function? 2. New housing and three-bedroom apartments are _________________ (substitutes, comple- ments) in New Orleans. How can you tell from the general demand function? 3. If average monthly income is $1,500 and the monthly rental rate for three-bedroom apart- ments is $700, then the demand function for new housing in New Orleans is Qd = _____________________________________. 4. Graph the demand curve for new housing in New Orleans on the axes provided below. Label the demand curve D0. 5. What happens to demand when the following changes occur? a. b. c. d. e. The price of the commodity rises. Income decreases and the commodity is normal. Income decreases and the commodity is inferior. The price of a complement good increases. The price of a substitute good decreases. The general supply function for new housing in New Orleans is estimated to be Qs =96+2P-10PL -4PK where P is the price per square foot of new housing in New Orleans, PL is the average hourly wage rate for construction workers, and PK is the price of capital (as measured by the average rate of interest paid on loans to home builders). Qs is measured in units of 1,000 square feet per month. 6. Does it make sense for PL and PK to have negative coefficients in the general supply func- tion? Explain why or why not. 7. If the average hourly wage rate for construction workers is $10 per hour and the average rate of interest on loans to builders is 9 percent (i.e., PK = 9), then the supply function for new housing is Qs = ______________________. 8. Graph the supply curve for new housing in the graph below. Label supply S0. 9. Other things remaining the same, what would happen to the supply of a particular commodity if the following changes occur? a. The price of the commodity increases. b. Government regulators outlaw the use of a technology that enables the good to be produced at a significantly lower cost. c. The prices of inputs used to produce the commodity decrease. d. The price of a commodity that is a substitute in production increases. e. Managers expect the price of the good to fall in the near future. f. As the cost of capital rises, firms in the industry stop purchasing plant and equip- ment, which allows depreciation to diminish the productive capacity in the indus- try. 10. Solve mathematically for equilibrium price and quantity. Show your work: PE = $__________ per square foot. QE = __________ square feet per month (in 1,000s). 11. Do your supply and demand curves intersect at PE and QE found in question 8 above? Should they? 12. In equilibrium found in question 8, compute total consumer, producer, and social surpluses: CS = $____________ PS = $____________ SS = $____________ 13. Suppose New Orleans suffers a serious recession that causes average monthly income to fall from $1,500 to $1,100 per month. If other things remain the same, the demand for new hous- ing in New Orleans is now: Qd = _______________________. Plot this new demand curve in the figure below. Label it D'. 14. Suppose that because of the recession in New Orleans, the wage rate for construction workers falls to $8 per hour. If other things remain the same, the supply of new housing in New Orle- ans is now: Qs = _______________________. Plot this new supply curve in the figure. Label the new supply curve S'. 15. After income falls to $1,100 and wages fall to $8, new equilibrium price and quantity are PE = $__________ per square foot QE = __________ square feet per month (in 1,000s) 16. Determine the effect upon equilibrium price and quantity sold if the following events occur in a particular market: a. The price of a substitute good (in consumption) decreases. b. Consumersâ income increases and the good is inferior. c. Government regulators decide to outlaw a cost-reducing technological process in order to protect the environment. d. The price of a complement good (in production) increases. e. The price of inputs used to produce the good decrease. f. Consumers expect that the price of the good will fall in the near future. g. It is widely publicized that consumption of the good is helpful in prevent- ing cancer. h. The price of a substitute good (in production) decreases. 17. Suppose that a pair of events from problem 15 occur simultaneously. For each of the pairs of events indicated below, perform a qualitative analysis to predict the direction of change in either the equilibrium price or the equilibrium quantity. Explain why the change in one of these two variables is indeterminate. a. Both a and h in problem 15 occur simultaneously. b. Both b and e in problem 15 occur simultaneously. c. Both d and g in problem 15 occur simultaneously. d. Both f and c in problem 15 occur simultaneously.

ECON 101 Lecture Notes - Lecture 13: Negative Number

ECON 101 Full Course Notes

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