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ECN 104 Chapter Notes - Chapter 4: Demand Curve, Snickers, Dasani

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coffeehorse876
28 Mar 2016
School
Ryerson University
Department
Economics
Course
ECN 104
Professor
Xingfei Liu

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Document Summary

**it is recommended that you use the textbook while reading these notes** Textbook used: microeconomics 13th edition by mcconnel, brue, flynn, barbiero. Price elasticity of demand: a measure of the responsiveness of buyers to a change in the price of a product or resource: let"s say restaurant meals have a high response to consumer spending. This large change in spending is called elastic: let"s say tooth pastes have a low response to consumer spending. We measure the degree to which demand is either elastic or inelastic using the following formula: Formula to get the percentage change in quantity demanded for product x : Formula to get percentage change in price of product x. Midpoint formula: a method for calculating price elasticity of demand or price elasticity of supply that averages the two prices and two quantities as the reference points for competing percentages.

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Related Questions

From the scenario for Katrina’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: %ΔTR = %ΔQ + %ΔP where TR = Total Revenue, Q is Quantity Demanded and P = price. Using this formula, what would be the % Δ in TR if ED is -.85 and the %ΔP is 10%?

When quantity demanded decreases in response to a change in price,

A. the demand curve shifts to the right.
B. the demand curve shifts to the left.
C. there is a movement down along the demand curve.
D. there is a movement up along the demand curve.
E. the supply curve shifts to the right.

The price elasticity of demand is the measure of the responsiveness of the demand for a good to a percentage change in the price of that same good. When the demand for a good changes due to an increase or decrease in the price of the good, it can be said that the good has a price elastic demand. On the other hand, a good whose demand is not significantly affected by a change in the price levels is price inelastic. For example, luxury goods are usually price elastic because these are not something that most people really need. Thus, when the price of luxury goods increases, the demand for such goods falls. Goods that fall within the latter category are usually the basic necessities such as food and prescription medicine. Even when these types of goods become pricier, most people would find ways to afford them because they need those items to survive. 

Question 16

  1. If price is cut and demand is elastic, total revenue will rise because

    the change in quantity demanded is greater than the percent change in price.

    the percent change in quantity demanded is greater than the change in price.

    the percent change in quantity demanded is greater than the percent change in price.

    customers can't find substitutes.

3 points

Question 17

  1. If price is cut and demand is inelastic, total revenue will fall because

    the change in quantity demanded is less than the percent change in price.

    the percent change in quantity demanded is less than the change in price.

    the percent change in quantity demanded is less than the percent change in price.

    customers can find substitutes.

3 points

Question 18

  1. If something is addictive, then

    price and demand are inversely related.

    price elasticity of demand is equal to one.

    demand is perfectly inelastic.

    demand is perfectly elastic.

3 points

Question 19

  1. In general, elasticities measure

    the change in quantity demanded when a product attribute changes.

    the change in consumer spending when income changes.

    the change in an attribute for a percentage change in price.

    the percentage change in the quantity demanded resulting from a fixed percentage change in some attribute.

3 points

Question 20

  1. Average total costs are defined as

    total costs divided by the change in output.

    total costs divided by output.

    the change in total costs when output changes.

    average variable costs plus marginal costs.

3 points

Question 21

  1. If a firm is experiencing economies of scale, then the long-run average cost curve is

    falling.

    rising.

    horizontal.

    shifting.

3 points

Question 22

  1. If average total cost is rising

    marginal cost is above average total cost.

    marginal cost is rising.

    marginal product is rising.

    marginal cost is above average total cost and is falling.

3 points

Question 23

  1. The period of time over which all inputs are variable is the

    market horizon.

    short run.

    calendar year.

    long run.

3 points

Question 24

  1. The supply chain refers to

    the supply curve.

    the process of outsourcing.

    the process of downsizing.

    the process of creating and selling a product.

3 points

Question 25

  1. When the capital (a fixed input) changes

    short-run marginal costs rise.

    short-run average total costs fall but do not shift.

    labor inputs decline.

    the short-run average total cost curve shifts.

3 points

Question 26

  1. A market of price takers is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 27

  1. A market with a single seller is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 28

  1. A market that mainly stresses product differentiation is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 29

  1. Entry into a competitive market will continue until

    economic profits are zero.

    normal profits are zero.

    when accounting losses are zero.

    a. and b. are true

3 points

Question 30

  1. Firms in an oligopoly

    act independently.

    engage in strategic behavior.

    have perfect knowledge of the behavior of others.

    openly collude.