ECO 201 Chapter Notes - Chapter 5: Negative Number, Midpoint Method, Demand Curve

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graytermite13

8 Feb 2018

School

Miami University

Department

Economics

Course

ECO 201

Professor

Matthew Philip Makofske

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Document Summary

This follows from the law of demand: by how much would consumption fall, elasticity is a measure of how much buyers and sellers respond to changes in market conditions. The midpoint method: a better way to calculate percentage changes and elasticities. The steeper the demand curve that passes through a given point, the smaller the price elasticity of demand. If demand is unit elastic (a price elasticity exactly equal to 1), total revenue remains constant when the price changes. Elasticity and total revenue along a linear dem and curve: a straight line has a constant slope. Other demand elasticities: the income elasticity of demand: the income elasticity of demand measures how the quantity demanded changes as consumer income changes. It is calculated as the percentage change in quantity demanded divided by the percentage change in income: (cid:1866)(cid:1855)(cid:1867)(cid:1865)(cid:1857) (cid:1857)(cid:1864)(cid:1871)(cid:1872) (cid:1855)(cid:1872) (cid:1867)(cid:1858) (cid:1856)(cid:1857)(cid:1865)(cid:1866)(cid:1856)= (cid:3017)(cid:3032)(cid:3045)(cid:3030)(cid:3032)(cid:3041)(cid:3047)(cid:3034)(cid:3032) (cid:3030) (cid:3041)(cid:3034)(cid:3032) (cid:3041) (cid:3044)(cid:3048)(cid:3041)(cid:3047)(cid:3047) (cid:3031)(cid:3032)(cid:3040)(cid:3041)(cid:3031)(cid:3032)(cid:3031) (cid:3017)(cid:3032)(cid:3045)(cid:3030)(cid:3032)(cid:3041)(cid:3047)(cid:3034)(cid:3032) (cid:3030) (cid:3041)(cid:3034)(cid:3032) (cid:3041) (cid:3041)(cid:3030)(cid:3042)(cid:3040)(cid:3032, normal goods: higher income raises the quantity demanded.

Related Questions

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.

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

When a monopoly lowers its price to increase quantity,

a. The quantity produced drives down marginal revenue

b. It will increase its profits

c. It will make less money on the units it would have orginally sold

d. It is not maximizing its profit

Which of the following statements is TRUE?

a. Both A and B

b. A monopoly can charge whatever it wants

c. Profit maximizatin occurs by setting price first

d. A monopoly cannot set price and quantity such that the point lies above the demand curve

A monopoly that is maximizing profits operates is the _______ portion of the demand curve

a. Unitary elastic

b. Horizontal

c. Elastic

d. Inelastic

A monopoly shuts down when,

a. The long run price is below its average variable cost

b. Never, because it can raise its prices as high as necessary to keep operating and maximizing profits

c. The short run price is below its average variable cost

d. The average cost is less than price

The ability of a monopoly to charge a price that exceeds marginal cost depends on,

a. Shape of the marginal cost curve

b. The price elasticity of supply

c. Price elasticity of demand

d. Slope of the demand curve

Which of the following could create a cost advantage for a monopoly?

a. Lower friction due to better organization

b. Better technology

c. All of the above

d. Standardization

Price discrimination,

a. Is illegal in the U.S.

b. Is when consumers use prices to discriminate between different quality products

c. Is a form of pricing where consumers pay different prices for a good

d. Allows firms to set a single intermediate price between consumers' low and high willingness to pay

Which of the following is likely hardest to resell?

a. The free facial you won at a raffel

b. An apple iPod

c. A coupon for a free haircut

d. A discount airline tickey you bought with your frequent flyer miles

If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities; then,

a. Consuers who buy larger quantities have a higher price elastiity of demand

b. Consumers who buy smaller quantities have a lower price elasticity of demand

c. Both A and C

d. Consumers who buy larger quantities have a lower price elasticity of demand

Purchasing a season pass t the local symphony,

a. Is an example of third degree price discrimination

b. Is an example of second degree price discrimination

c. Is an example of first degree price discrimination

d. All of the above

ECO 201 Chapter Notes - Chapter 5: Negative Number, Midpoint Method, Demand Curve

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