ECON 1100 Lecture Notes - Lecture 5: Demand Curve, Normal Good

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erinhorse521

18 Mar 2016

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: a concept used to quantify the response in one variable when another variable changes. : it measures how much the quantity demanded of a good responds to a change in the price of that good. : quantity demanded does not respond strongly to price changes. : quantity demanded responds strongly to changes in price. : quantity demanded changes by the same percentage as the price ed = 1. : horizontal line: how do you calculate the elasticity of demand using the midpoint formula?= (q2 q1)/((q 2+q1)/ 2) ( p2 p1)/(( p 2+ p1)/ 2) Availability of substitutes a cheaper price in a substitute of x will decrease the demand for x, therefore x is elastic. Importance of being unimportant small price changes go unnoticed over time making demand inelastic. : it is a measure of the responsiveness of demand to changes in income. change qd change income.

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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.

If the percentage change in the quantity demanded of a good is less than the percentage change in price, the price elasticity of demand is:

A) Elastic

B) Inelastic

C) Perfectly inelastic

D) Unitary elastic

byzantiummole828

1. In each case below, what is the value of the price elasticity of demand? Is demand perfectly inelastic, inelastic, unit elastic, elastic or perfectly elastic?

a. Price falls by 10%, quantity demanded rises by 8%

b. Price rises by 3%, quantity demanded falls by 3%

c. Price rises by 1%, quantity demanded falls by 5%

d. Price rises by 5%, quantity demanded collapses to zero

e. Price falls by 2%, quantity demanded does not change

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ECON 1100 Lecture Notes - Lecture 5: Demand Curve, Normal Good

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