ELASTICITY AND ITS APPLICATION. J. Mao
|
|
- Elfrieda Robinson
- 6 years ago
- Views:
Transcription
1 ELASTICITY AND ITS APPLICATION J. Mao
2 Elasticity Until now, we ve been talking about the direction in which quantities change. A downward-sloping demand: price é è quantity demanded ê In real life it is quite important to know the intensity of the change (how much) By how much will the demand for my product decrease if I increase the price by 10%?
3 Elasticity Elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of their determinants Price elasticity of demand measures how much quantity demanded changes in response to a change in price.
4 Price elasticity of demand Price elasticity of demand = Percentage change in Q d Percentage change in P
5 Price elasticity of demand Price elasticity of demand = Percentage change in Q d Percentage change in P Example: P Price elasticity of demand equals P rises by 10% P 2 P 1 D 15% 10% = 1.5 Q falls by 15% Q 2 Q 1 Q 5
6 Price Elasticity of Demand Elasticity is unit free: Allows comparison of price sensitivity across markets. Car market and T-shirt market Xiamen market and China market
7 Price elasticity of demand Formally, Price elasticity of demand d,p = dq/q dp/p = dq/q dp/p (Q 2 Q 1 )/ 1 2 (Q 1+Q 2 ) (P 2 P 1 )/ 1 2 (P 1+P 2 )
8 Prof Jonathan Wolff ( Department PrinciplesofofEconomics Micro Economics University of Notre Dame) September 10th, 2012
9 Elasticity Prof Jonathan Wolff ( Department PrinciplesofofEconomics Micro Economics University of Notre Dame) September 10th, /
10 Price Elasticity of Demand The price elasticity of demand is closely related to the slope of the demand curve. Rule of thumb: The flatter the curve, the bigger the elasticity. The steeper the curve, the smaller the elasticity.
11 Perfectly inelastic demand (one extreme case) Price elasticity of demand = % change in Q % change in P = 0% 10% = 0 D curve: vertical P D Consumers price sensitivity: none P 1 P 2 Elasticity: 0 P falls by 10% Q 1 Q changes by 0% Q 20
12 Inelastic demand Price elasticity of demand = % change in Q % change in P = < 10% 10% < 1 D curve: relatively steep P Consumers price sensitivity: relatively low P 1 P 2 D Elasticity: < 1 P falls by 10% Q 1 Q 2 Q rises less than 10% Q 21
13 Unit elastic demand Price elasticity of demand = % change in Q % change in P = 10% 10% = 1 D curve: intermediate slope P Consumers price sensitivity: intermediate P 1 P 2 D Elasticity: 1 P falls by 10% Q 1 Q 2 Q Q rises by 10%
14 Elastic demand Price elasticity of demand = % change in Q % change in P = > 10% 10% > 1 D curve: relatively flat P Consumers price sensitivity: relatively high P 1 P 2 D Elasticity: > 1 P falls by 10% Q 1 Q 2 Q rises more than 10% Q 23
15 Perfectly elastic demand (the other extreme) Price elasticity of demand = % change in Q % change in P = any % 0% = infinity D curve: horizontal Consumers price sensitivity: extreme P 2 = P 1 P D Elasticity: infinity P changes by 0% Q 1 Q 2 Q changes by any % Q 24
16 Price elasticity of demand > 1 < 1 =1 =0!1 Elastic Inelastic Unit Elastic Perfectly inelastic Perfectly elastic
17 Price Elasticity of Demand When two demand curves cross 12 P/Q is the same for both curves (1/slope) is smaller for the steeper curve At the common point demand is less price elastic for the steeper curve Price 6 4 D 1 Less Elastic More Elastic D Quantity
18 Price Elasticity along a Linear Demand Curve At the midpoint, demand is unit elastic At high P and low Q, demand is elastic At low P and high Q, P/Q is small a 1 1 Price a/2 1 b/2 Quantity b
19 What determines Price Elasticity?
20 Availability of Close Substitutes McDonalds Cheeseburgers vs. Hubble Telescopes Price elasticity is higher when there exist close substitutes
21 Necessities vs Luxuries Insulin" vs. Caribbean Cruise" Necessities are more price inelastic Luxuries are more price elastic
22 Definition of the market Macbook Air" vs. Laptop Computers Price elasticity is higher for narrowly defined goods than more broadly defined ones
23 Time horizon Gasoline in the Short Run" vs Gasoline in the Long Run" Price elasticity is higher in the long run than in the short run.
24 Price Elasticity and Total Revenue Total Revenue/Expenditure = P x Q If you raise your price from $2,000 to $2,500, would your revenue rise or fall? A price increase has two effects on revenue: Higher P means more revenue on each unit But you sell fewer units (lower Q), due to law of demand Which of these two effects is bigger? It depends on the price elasticity of demand.
25
26
27
28 How Total Revenue is affected by a change in price d (Total Revenue) dp = d (QP ) dp = dq dp P + Q Therefore, d (Total Revenue) dp d (Total Revenue) dp > 0, dq dp < 0, dq dp P Q > 1, d,p < 1 P Q < 1, d,p > 1
29 How Total Revenue is affected by a change in price
30 Price Elasticity and Total Revenue Movie ticket price increases from $2 to $4 A and B are both below the midpoint of the curve Inelastic portion of the demand curve Total revenue increases when price increases Price ($/ticket) 12 2 D Expenditure = $1,000/day A Price ($/ticket) 12 4 D Expenditure = $1,600/day B 5 6 Quantity (00s of tickets/day) Quantity (00s of tickets/day) 4 6
31 Price Elasticity and Total Revenue Movie ticket price increases from $8 to $10 Prices are both above the midpoint of the curve Elastic portion of the demand curve Total revenue decreases when price increases Price ($/ticket) 12 8 Y Expenditure = $1,600/day D Price ($/ticket) Z Expenditure = $1,000/day D 2 6 Quantity (00s of tickets/day) 1 6 Quantity (00s of tickets/day)
32 Total Revenue along a Linear Demand Curve Price $12 $10 $8 $6 $4 $2 $0 Quantity 0 1,000 2,000 3,000 4,000 5,000 6,000 Expenditure $0 $1,000 $1,600 $1,800 $1,600 $1,000 $0 Price ($/ticket) Total expenditure ($/day) 1,800 1,600 1, Quantity (00s of tickets/day) Price ($/ticket)
33 Estimating Elasticities When estimating demand elasticity, need to hold fixed other determinants of demand isolate impact of change in price.
34 Gasoline Market in the US June 2007 and June 2008 Time Period Per Capita Daily Consumption of Motor Gasoline Average Price Per Gallon in Dollars June June Average of Both Years %.05.28
35 Estimating Elasticities ε d,p of US gas demand? Elastic or inelastic? As prices go up, total spending should increase or decrease? Is this short-run elasticity or long-run elasticity?
36 Estimating Elasticities Is the price change due to supply shift or demand shift or both? To estimate price elasticity of demand, you want the demand curve stay constant while the supply curve shifts Consumer tastes Tastes for driving higher in summer than winter. So comparing June to June Number of buyers Population grows about 1% a year Not significant. Also comparing per capita Income Income in June 2007 and June 2008 about the same (financial crisis led to income decrease after summer 2008) Prices of substitutes and complements Didn t change much over the one year period Expectations?
37 Estimating long-run Elasticities One way to estimate long-run elasticity is to compare cases where prices have been different a long time. Fuel Consumption in Europe and the U.S. Europe has long taxed gasoline. If taxes on gasoline are high for a long time, like in Europe, consumers will shift to fuel-efficient cars. People will move closer to where they work, etc. All these adjustments take time.
38 Country Average Price $US per Gallon United States Selected Countries in Europe Norway 7.00 *.30 United Kingdom Germany France Spain Italy Consumption Per Capita Gallons Per Day Country United States 45.5 Selected Countries in Europe Norway 51.9 United Kingdom 35.7 Germany 34.3 France 32.7 Spain 31.6 Italy 30.4 Per Capita GDP ($1,000) Some Other Countries Japan Mexico China Some Other Countries Japan 33.6 Mexico 14.0 China 5.3
39 Table 3: Price and Per Capita Quantit Consumed of Gasoline The United States and Norway in 200 Time Period Per Capita Daily Consumption of Motor Gasoline Average Price Per Gallon in Dollars United States Norway Average of Both Years %
40 Estimating long-run Elasticities Is the supply curve shifting between the two countries? Is demand curve staying fixed? Income Price of substitutes/complements n Can be a big problem. Public transit is much better in Norway than in the U.S. So there are really two main differences: (1) gas prices are higher and (2) public transit options are better. Both contribute to the lower consumption of gas in Norway Other factors n Population density impacts gasoline demand n Any other factors that make the demand curve in Norway and the U.S. different
41 Price Elasticity and Total Revenue The price of a pair of running shoes rises from $100 to $150, while the quantity demanded falls from 1200 to 900 Assumptions needed to calculate price elasticity of demand Calculate the price elasticity of demand Is demand elastic, unit elastic, or inelastic Calculate total revenue before and after the price increase By how much would the quantity demanded change if price rises another 5%? (and what further assumptions are needed to answer this question)
42 Price Elasticity of Supply Price elasticity of supply = Percentage change in Q s Percentage change in P Example: Price elasticity of supply equals 16% 8% = 2.0 P rises by 8% P 2 P 1 P Q rises by 16% Q 1 Q 2 S Q 43
43 Perfectly Inelastic Supply - Elasticity equals 0 Price Supply 1. An increase in price... $ Quantity 2....leaves the quantity supplied unchanged.
44 Perfectly Inelastic Supply Example: land on Manhattan/HK island/xiamen Supply is completely fixed Any one-of-a-kind item has perfectly inelastic supply Work of art (Mona Lisa)
45 Inelastic Supply - Elasticity is less than 1 Price Supply 1. A 22% increase in price... $ leads to a 10% increase in quantity. Quantity
46 Unit Elastic Supply - Elasticity equals 1 Price Supply 1. A 22% increase in price... $ leads to a 22% increase in quantity. Quantity
47 Elastic Supply - Elasticity is greater than 1 Price Supply 1. A 22% increase in price... $ leads to a 67% increase in quantity. Quantity
48 Perfectly Elastic Supply - Elasticity equals infinity Price 1. At any price above $4, quantity supplied is infinite. $4 Supply 2. At exactly $4, producers will supply any quantity. 3. At a price below $4, quantity supplied is zero. Quantity
49 Price Elasticity of Supply If the supply curve is linear and has a zero intercept, then ε s,p =1 If the supply curve is linear and has a positive intercept, then ε s,p >1 and Q é è ε s,p =1 ê
50 Price Elasticity of Supply In general, elasticity of can vary over the supply curve. Consider an industry in which firms have factories with a limited capacity for production. For low levels of quantity supplied, firms can use idle capacity to respond to changes in the price As the quantity supplied rises, firms begin to reach capacity. Once capacity is fully used, increasing production further requires the construction of new plants. To induce firms to incur this extra expense, the price must rise substantially
51 Price Elasticity of Supply
52 Determinants of Supply Elasticity The more easily sellers can change the quantity they produce, the greater the price elasticity of supply Example: Supply of beach front property is harder to vary and thus less elastic than supply of new cars For many goods, price elasticity of supply is greater in the long run than in the short run Firms can build factories new firms may enter the market
53 Supply Elasticity and Equilibrium Change The supply of beachfront property is inelastic. The supply of new cars is elastic. Suppose population growth causes demand for both goods to double For which product will P change the most? For which product will Q change the most?
54 Supply Elasticity and Equilibrium Change When supply is inelastic, an increase in demand has a bigger impact on price than on quantity. P 2 P D 1 Beachfront property (inelastic supply): D 2 S B P 1 A Q 1 Q 2 Q
55 Supply Elasticity and Equilibrium Change Answers When supply is elastic, an increase in demand has a bigger impact on quantity than on price. P 2 P 1 P D 1 D 2 New cars (elastic supply): A B S Q 1 Q 2 Q
56 Other Elasticities Income Elasticity of Demand d,i = Percentage change in quantity demanded Percentage change in income = dq/q di/i
57 Income Elasticity of Demand Normal goods ε d,i >0 Inferior goods ε d,i <0
58 Other Elasticities Cross-price Elasticity of Demand d,xy = Percentage change in quantity demanded of good x Percentage change in the price of good y = dq x/ Q x dp y / P y
59 Cross-price Elasticity of Demand Substitutes ε d,xy >0 Complements ε d,xy <0
60 Cross-price Elasticity of Demand Suppose the quantity demanded for good X decreased 25% while the price of good Y increased by 50% What is the cross-price elasticity of demand for X and Y? Are X and Y substitutes or complements? What assumptions do we need to answer these questions?
61 Cross-price Elasticity of Demand As Gas Costs Soar, Buyers Flock to Small Cars NYTimes, 5/2/2008 High Cost of Driving Ignites Online Classes Boom Chronicle of Higher Education, 7/11/2008 Gas prices knock bicycle sales, repairs into higher gear Associated Press, 5/11/2008 Camel demand soars in India (as oil price soars) Financial Times, 5/2/2008
62 Can Good News for Farming Be Bad News for Farmers? Scientific discovery of new wheat hybrid that can raise yield per acre by 20% Q é, P ê Change in total revenue depends on price elasticity of demand Demand for wheat is usually inelastic P ê -> total revenue ê (inelastic demand) If the new hybrid hurts farmers, why would they adopt it? In competitive markets, each farmer is a price taker: it s better for each to sell more given market price When all farmers do this, the supply of wheat increases, the price falls, and farmers are worse off.
63 Yacht Tax Proposal: luxury tax on yachts over $100,000 will yield $31 million in U.S. tax revenue Price elasticity of demand is high Outcome Tax took effect in Jan 1990 Actual tax revenue $16.6 million People bought yachts outside US to avoid tax n 7,600 jobs in US boating industry lost Tax repealed after 2 years
64 The War on Drugs One adverse effect of drug use is that drug addicts often turn to robbery and other violent crimes to obtain the money needed to support their habit. One measure to stop drug-related violence: drug interdiction. i.e. stop the entry and supply of drugs What happens to drug use? What happens to the total revenue of drug sellers? Is demand for drugs elastic or inelastic? Short-run vs Long-run
65 The War on Drugs
66 The War on Drugs In the short run, increase in total revenue means Drug sellers have more incentive to engage in illicit drug trade, leading to more powerful drug cartels and organized crime in drug-producing countries Drug addicts have to spend more for drugs, which may lead to increase in drug-related crime in drugconsuming countries In the long run, this may encourage people to break their habit and discourage the number of new users.
2007 Thomson South-Western
Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity
More informationElasticity and its Application
eventh Edition rinciples of Economics N. Gregory Mankiw CHATER 5 Elasticity and its Application Modified by Joseph Tao-yi Wang Wojciech Gerson (1831-1901) In this chapter, look for the answers to these
More informationElasticity and Its Applications. Copyright 2004 South-Western
Elasticity and Its Applications 5 Copyright 2004 South-Western Copyright 2004 South-Western/Thomson Learning Elasticity... allows us to analyze supply and demand with greater precision. is a measure of
More informationEcon 1101 Spring 2013 Week 3. Section 038 2/6/2013
Econ 1101 Spring 2013 Week 3 Section 038 2/6/2013 Announcements Homework 2 due Friday night at 11:45pm, CST 2 Agenda for today 1. The concept of elasticity 2. Related case study 3. Income elasticity of
More informationThe Market Forces of Supply and Demand. Premium PowerPoint Slides by Ron Cronovich
C H A P T E R 4 The Market Forces of Supply and Demand Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all
More informationMacroeconomics. Elasticity and its Application. A scenario. In this chapter, look for the answers to these questions: N.
C H A T E R 5 Elasticity and its Application R I N C I L E S O F Macroeconomics N. Gregory Mankiw remium oweroint Slides by Ron Cronovich 2010 South-Western, a part of Cengage Learning, all rights reserved
More informationEcon 1101 Summer 2013 Lecture 3. Section 005 6/19/2013
Econ 1101 Summer 2013 Lecture 3 Section 005 6/19/2013 Announcements Homework 2 is due tonight at 11:45pm, CDT Recitation is tomorrow at the end of the class prepare questions about the homework or lecture
More informationA scenario. Elasticity and its Application. In this chapter, look for the answers to these questions:
5 Elasticity and its Application R I N C I L E S O F ECONOMICS FOURTH EITION N. GREGORY MANKIW oweroint Slides by Ron Cronovich 2006 Thomson South-Western, all rights reserved In this chapter, look for
More informationThe law of supply states that higher prices raise the quantity supplied. The price elasticity of supply measures how much the quantity supplied
In a competitive market, the demand and supply curve represent the behaviour of buyers and sellers. The demand curve shows how buyers respond to price changes whereas the supply curve shows how sellers
More informationMacroeconomics Sixth Edition
N. Gregory Mankiw rinciples of Macroeconomics Sixth Edition 5 Elasticity and its Application remium oweroint Slides by Ron Cronovich In this chapter, look for the answers to these questions: What is elasticity?
More informationMicroeconomics Sixth Edition
N. Gregory Mankiw rinciples of Microeconomics Sixth Edition 5 Elasticity and its Application remium oweroint Slides by Ron Cronovich In this chapter, look for the answers to these questions: What is elasticity?
More informationEconomics. PowerPoint Lecture Notes for Chapter 5:
oweroint Lecture Notes for Chapter 5: Elasticity and its Application rinciples of Economics 5 th edition, by N. Gregory Mankiw remium oweroint lides by Ron Cronovich C H A T E R 5 Elasticity and its Application
More informationChapter 6 Elasticity: The Responsiveness of Demand and Supply
hapter 6 Elasticity: The Responsiveness of emand and Supply 1 Price elasticity of demand measures: how responsive to price changes suppliers are. how responsive sales are to changes in the price of a related
More informationElasticity and Its Application
Elasticity and Its Application Elasticity... is a measure of how much buyers and sellers respond to changes in market conditions allows us to analyze supply and demand with greater precision. Journal Question-Name
More informationElasticity and Its Applications
Elasticity and Its Applications 1. In general, elasticity is a. a measure of the competitive nature of a market. b. the friction that develops between buyer and seller in a market. c. a measure of how
More informationLesson-9. Elasticity of Supply and Demand
Lesson-9 Elasticity of Supply and Demand Price Elasticity Businesses know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good
More informationChapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply
Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply 1 The Price Elasticity of Demand and Its Measurement We define price elasticity of demand and understand how to measure it. Although
More informationCopyright 2010 Pearson Education Canada
What are the effects of a high gas price on buying plans? You can see some of the biggest effects at car dealers lots, where SUVs remain unsold while sub-compacts sell in greater quantities. But how big
More informationMicroeconomics: Principles, Applications, and Tools
Microeconomics: Principles, Applications, and Tools NINTH EDITION Chapter 5 Elasticity: A Measure of Responsiveness Learning Objectives 5.1 List the determinants of the price elasticity of demand 5.2 Use
More informationFormula: Price of elasticity of demand= Percentage change in quantity demanded Percentage change in price
1 MICRO ECONOMICS~ CHAPTER FOUR CHAPTER FOUR PRICE ELASTICITY OF DEMAND You know that when supply increases, the equilibrium price falls and the equilibrium quantity increases THE PRICE ELASTICITY OF DEMAND~
More informationCH 5 sample questions - 80
Class: Date: CH 5 sample questions - 80 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The price elasticity of demand measures the that results from a.
More informationElasticity. Demand Curve. Quantity of units
Cooleconomics.com Principles of Economics Elasticity Contents: Demand and steepness Supply and steepness Elasticity introduction price elasticity of demand price elasticity of supply income elasticity
More information2013 sample MC questions - 90
Class: Date: 2013 sample MC questions - 90 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The price elasticity of demand measures the that results from
More informationChapter 6. Elasticity
Chapter 6 Elasticity Both the elasticity coefficient and the total revenue test for measuring price elasticity of demand are presented in this chapter. The text discusses the major determinants of price
More informationTo start we will look at the relationship between quantity demanded and price.
University of California, Merced ECO 1-Introduction to Economics Chapter 5 Lecture otes Professor Jason Lee I. Elasticity As we learned in Chapter 4, there is a clear relationship between the quantity
More informationChapter 6 Elasticity: The Responsiveness of Demand and Supply
Economics 6 th edition 1 Chapter 6 Elasticity: The Responsiveness of Demand and Supply Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall 2017 The Price Elasticity
More informationSubtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity
CHAPTER 4 Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity CHAPTER OVERVIEW Price elasticity is one of the most useful concepts in economics. It measures the responsiveness
More informationEconomic Analysis for Business Decisions Multiple Choice Questions Unit-2: Demand Analysis
Economic Analysis for Business Decisions Multiple Choice Questions Unit-2: Demand Analysis 1. The law of demand states that an increase in the price of a good: a. Increases the supply of that good. b.
More information!"#$#%&"'()#*(+,'&$-''(.#/-'((
Lecture 1 Basic Concerns of Economics What is Economics! Economics is the study of how society manages its scarce resources. o Economic Problem: How a society can satisfy unlimited wants with limited resources
More informationIB Economics/Microeconomics/Elasticities
IB Economics/Microeconomics/Elasticities Contents 1 2.2 Elasticities 1.1 Price Elasticity of Demand (PED) 1.2 Price Elasticity of Supply (PES) 1.3 Income Elasticity of Demand (YED) 1.4 Cross Elasticity
More informationElasticity: A Measure of Responsiveness. 1 of of 42
1 of 42 2 of 42 Elasticity: A Measure of In every large city in the United States, the public bus system runs a deficit: Operating costs exceed revenues from passenger fares. P R E P A R E D B Y FERNANDO
More informationManagerial Economics
Managerial Economics Unit 1: Demand Theory Rudolf Winter-Ebmer Johannes Kepler University Linz Summer Term 2018 Winter-Ebmer, Managerial Economics: Unit 1 - Demand Theory 1 / 55 OBJECTIVES Explain the
More informationLecture 3 Mankiw chapters 4 and 5
In-Class Exam 1 1) Efficiency is not the same than equity. Why? Give an example in which an efficient allocation has been achieved but it creates significant inequalities. 2) Explain each of the following
More informationChapter 3. Applying the Supply-and- Demand Model
Chapter 3 Applying the Supply-and- Demand Model Reading Assignment for Week: Finish Chapter 3 Chapter 9 (sections 9.2, 9.3, 9.4) Chapter 13 (first few pages through section 13.1) 3-2 Topic How the shapes
More informationWISE, XMU Principles of Economics Fall, Midterm Exam. 2. An example of a perfectly competitive market would be the market for
Midterm Exam 1. For markets to work well, there must be (a) market power. (b) a central planner. (c) property rights. (d) abundant, not scarce, resources. 2. An example of a perfectly competitive market
More informationAP Microeconomics Chapter 6 Outline
I. Introduction AP Microeconomics Chapter 6 A. Learning Objectives In this chapter students should learn: 1. What price elasticity of demand is and how it can be applied. 2. The usefulness of the total
More informationMidterm 2 Sample Questions. Use the demand curve diagram below to answer the following THREE questions.
! Midterm 2 Sample uestions Use the demand curve diagram below to answer the following THREE questions. 8 6 4 2 4 8 12 16 1. What is the own-price elasticity of demand as price decreases from 6 per unit
More informationECO 2301 Spring EXAM 2 Form 2 Wednesday, April 1 st Solutions
ECO 2301 Spring 2015 Sec 002 Klaus Becker EXAM 2 Form 2 Wednesday, April 1 st Solutions 1. Mathematically, price elasticity of demand is: A. the percentage change in the quantity of a good that is demanded
More informationECON 251. Exam 1 Pink. Fall 2013
ECON 251 1. By definition, opportunity cost is a. The value of the best alternative b. The sum of the value of all available alternatives c. The amount of money it takes to buy an item d. Always greater
More informationEconomics: Canada in the Global Environment, 7e (Parkin) Chapter 4 Elasticity. 4.1 Price Elasticity of Demand
Economics: Canada in the Global Environment, 7e (Parkin) Chapter 4 Elasticity 4.1 Price Elasticity of Demand 1) A price elasticity of demand of 2 means that a 10 percent increase in price will result in
More informationEco 300 Intermediate Micro
Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 61 Monopoly Market
More informationfull file at
Chapter 2 1. Which of the following is a key assumption of the supply and demand model? Answer: A A. to focus on how the price and quantity sold are determined in a single market B. to focus on how the
More informationPolar Cases of Elasticity and Constant Elasticity
Polar Cases of Elasticity and Constant Elasticity By: OpenStaxCollege There are two extreme cases of elasticity: when elasticity equals zero and when it is infinite. A third case is that of constant unitary
More informationChapter 19 Demand and Supply Elasticity
Chapter 19 Demand and Supply Elasticity Learning Objectives After you have studied this chapter, you should be able to 1. define price elasticity of demand, elastic demand, unit elastic demand, inelastic
More informationElasticity. 2. a. Using the midpoint method, the percent change in the quantity of U.S. winter wheat demanded is 2.0 billion 2.2 billion 2.
Elasticity CHAPTER 6 1. Do you think the price elasticity of demand for Ford sport - utility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain
More informationMidterm 2 - Solutions
Ecn 100 - Intermediate Microeconomics University of California - Davis November 12, 2010 Instructor: John Parman Midterm 2 - Solutions You have until 11:50am to complete this exam. Be certain to put your
More informationMicroeconomics. More Tutorial at
Microeconomics Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. A legal maximum price at which a good can be sold is a price a. floor. b.
More informationMicroeconomics. Use the graph below to answer question number 3
More Tutorial at Microeconomics 1. Opportunity costs are the values of the: a. minimal budgets of families on welfare b. hidden charges passed on to consumers c. monetary costs of goods and services *
More informationMicroeconomics. Use the graph below to answer question number 3
More Tutorial at Microeconomics 1. Opportunity costs are the values of the: a. minimal budgets of families on welfare b. hidden charges passed on to consumers c. monetary costs of goods and services *
More informationELASTICITY AND ITS APPLICATION
5 ELASTICITY AND ITS APPLICATION Questions for Review 1. If demand is elastic, an increase in price reduces total revenue. With elastic demand, the quantity demanded falls by a greater percentage than
More informationECON 110, Prof. Hogendorn. Problem Set 2
ECON 110, Prof. Hogendorn Problem Set 2 1. SUVs. This question asks you to analyze the market for Sport Utility Vehicles (SUVs) using a nonlinear demand curve. (a) The demand function (measured in hundreds
More informationMacro Unit 1b. This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices.
Macro Unit 1b Demand Market: an institution or mechanism, which brings together buyers ("demanders") and sellers ("suppliers") of particular goods and services. Notice that the remainder of this unit assumes
More information1 Which of the following is a key assumption of the supply and demand model?
1 Which of the following is a key assumption of the supply and demand model? to focus on how the price and quantity sold are determined in a single market (True Answer )Correct to focus on how the prices
More informationManagerial Economics
Managerial Economics Unit 1: Demand Theory Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2013/14 Winter-Ebmer, Managerial Economics: Unit 1 - Demand Theory 1 / 54 OBJECTIVES Explain the
More information2013 Pearson. What do you do when the price of gasoline rises?
What do you do when the price of gasoline rises? Elasticities of Demand and Supply 5 When you have completed your study of this chapter, you will be able to 1 Define the price elasticity of demand, and
More informationTopic 4c. Elasticity. What is the difference between this. and this? 1 of 23
Topic 4c Elasticity What is the difference between this and this? 1 of 23 Defining and Measuring Elasticity (I) Price elasticity of demand Ø The price elasticity of demand is the ratio of the percent change
More informationChapter 3 Elasticity.notebook. February 03, Chapter 3: Competitive Dynamics and Government (Elasticity and Related Concepts)
Chapter 3: Competitive Dynamics and Government (Elasticity and Related Concepts) price elasticity of demand the responsiveness of a product's quantity demanded to a change in its price. Degree of Elasticity
More informationECON 2100 (Summer 2015 Sections 07 & 08) Exam #2C
ECON 21 (Summer 215 Sections 7 & 8) Exam #2C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. A Price Control generally refers to A. who bears the burden of a tax,
More informationAP Econ Section 9 Micro
Name: Date: _ ID: A AP Econ Section 9 Micro Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Gas prices recently increased by 25%. In response, purchases
More informationECON 120 SAMPLE QUESTIONS
ECON 120 SAMPLE QUESTIONS 1) The price of cotton clothing falls. As a result, 1) A) the demand for cotton clothing decreases. B) the quantity demanded of cotton clothing increases. C) the demand for cotton
More informationThe price elasticity of demand when price decreases from $9 to $7 is A B C D -1.
Varsity Economics Product Market: Elasticity 1 The price elasticity of demand is a measure of the A effect of changes in demand on the price. B relationship between price and profitability. C responsiveness
More informationECON 102 Micro Principles Exercise 2. Multiple Choice Questions. Choose the best answer July 24,2008
1 ECON 102 Micro Principles Exercise 2 Multiple Choice Questions. Choose the best answer July 24,2008 1. When marginal benefit (MB) is greater than marginal cost (MC) A) the economy produces too little
More informationChapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions
Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive
More informationChapter 4. Elasticity. In this chapter you will learn to. Price Elasticity of Demand
Chapter 4 Elasticity In this chapter you will learn to 1. Explain the meaning of price elasticity of demand and how it is measured. 2. Describe the relationship between demand elasticity and total expenditure.
More informationJANUARY EXAMINATIONS 2008
No. of Pages: (A) 9 No. of Questions: 38 EC1000A micro 2008 JANUARY EXAMINATIONS 2008 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates
More informationECO402_Final_Term_Solved_Quizzes By
ECO402_Final_Term_Solved_Quizzes By http://www.vustudents.net 1. The "perfect information" assumption of perfect competition includes all of the following except one. Which one? Consumers know their preferences.
More informationCHAPTER 2: DEMAND AND SUPPLY
CHAPTER 2: DEMAND AND SUPPLY CIA4U Ms. Schirk 2.3 THE MARKET A market can be: A physical place where goods are bought and sold A collective reference to all the buyers and sellers of a particular good
More informationCHAPTER 2: DEMAND AND SUPPLY
2.3 THE MARKET CHAPTER 2: DEMAND AND SUPPLY CIA4U Ms. Schirk A market can be: A physical place where goods are bought and sold A collective reference to all the buyers and sellers of a particular good
More informationUnit 2: Theory of Consumer Behaviour
Name: Unit 2: Theory of Consumer Behaviour Date: / / Notations and Assumptions A consumer, in general, consumes many goods; but for simplicity, we shall consider the consumer s choice problem in a situation
More informationSection 1: Microeconomics Syllabus item: 18 Weight: Elasticity. Price Elasticity of Demand (PED)
Section 1: Microeconomics Syllabus item: 18 Weight: 3 1.2 Elasticity Price Elasticity of Demand (PED) 1. Price Elasticity of Demand and its determinants Elasticity ² Measure of responsiveness. It measures
More informationGoods with many substitutes or luxe goods ( Gucci, yachts) Small change in price = even smaller change in demand
Elasticity Price Elasticity of Demand - The measure of the responsiveness of quantity demanded of a good to a change in price. - PED= %change in QD/ % change Price - If PED > 1 = Elastic Small change in
More informationLecture 3(iii) Lecture. Announcements. 1. What makes demand more elastic? 2. Income Elasticity
Lecture 3(iii) Announcements Lecture 1. What makes demand more elastic? 2. Income Elasticity 3. Widget Industry in Econland Consumer Surplus Producer Surplus 4. Pareto Efficiency What Makes Demand More
More informationChapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions
Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive
More information1.2.3 Price, Income and Cross Elasticities of Demand
1.2.3 Price, Income and Cross Elasticities of Demand Price elasticity of demand The price elasticity of demand is the responsiveness of a change in demand to a change in price. The formula for this is:
More information2. The producers of a product with an elastic demand will have a strong incentive to reduce the price of their product.
Learning activity 5 True/False answers 1. If the price elasticity of the demand for chocolates is greater than one, then the manufacturers of chocolates can increase their total revenue by raising the
More informationECON 200. Introduction to Microeconomics
ECON 200. Introduction to Microeconomics Homework 3 Part I Name: [Multiple Choice] 1. A life-saving medicine without any close substitutes will tend to have (a) a. a small elasticity of demand. b. a large
More informationMultiple Choice Identify the letter of the choice that best completes the statement or answers the question.
Final day 2 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. What determines how a change in prices will affect total revenue for a company?
More informationLEARNING UNIT 6 LEARNING UNIT 6
DATE: March 2014 MODULE: PMIC6111 TEXTBOOK REFERENCE: pg 153-173 THEME: ELASTICITY OBJECTIVES: BY END OF YOU SHOULD KNOW THE FOLLOWING: DEFINE ELASTICITY EXPLAIN MEANING AND SIGNIFICANCE OF PRICE ELASTICITY
More informationWJEC (Eduqas) Economics A-level
WJEC (Eduqas) Economics A-level Microeconomics Topic 2: Demand and Supply in Product Markets 2.4 Price, income and cross price elasticities of demand and supply Notes Price elasticity of demand The price
More informationCHAPTER 2 THEORY OF DEMAND AND SUPPLY. Unit 3. Supply. The Institute of Chartered Accountants of India
CHAPTER 2 THEORY OF DEMAND AND SUPPLY Unit 3 Supply Learning Objectives At the end of this unit you will be able to : understand the meaning of supply. understand what determines supply. get an insight
More informationElasticity and Its Applications PRINCIPLES OF ECONOMICS (ECON 210) BEN VAN KAMMEN, PHD
Elasticity and Its Applications PRINCIPLES OF ECONOMICS (ECON 210) BEN VAN KAMMEN, PHD Introduction This is the first of 4 chapters that comprise the middle of this course. These chapters are extensions
More informationEcon 200 Lecture 7 January 24, 2017
1. Learning Catalytics Session 2. Elasticity and Total Revenue Econ 200 Lecture 7 January 24, 2017 3. Cross-Price and Income Elasticities 4. Elasticity of Supply 5. Consumer & Producer Surplus 1 Total
More informationINSTITUTE OF RISING STARS
INSTITUTE OF RISING STARS 1/9,Lalita Park, Main Vikas Marg,Laxmi Nagar Chapter 2 Theory of Demand and Supply 1. Which of the following pairs of goods is an example of substitutes? (a) Tea and sugar (b)
More informationEconomics, so far. Straight line Why? Transferable resources anything that can grow wheat can grow barley
Economics, so far I. Opportunity Cost a. What it is: what is given up b. Our first assumption is that resources money, time, land, etc are LIMITED. c. THUS we make choices. And every choice has an opportunity
More informationChapter 4: Demand. Section I: Understanding Demand. Section II: Shifts of the Demand Curve. Section III: Elasticity of Demand
Chapter 4: Demand Section I: Understanding Demand Section II: Shifts of the Demand Curve Section III: Elasticity of Demand Section 1: Understanding Demand LEQ: What is the law of demand? VOCAB: demand
More informationCHAPTER 4: DEMAND. Lesson 3: elasticity of demand
CHAPTER 4: DEMAND Lesson 3: elasticity of demand 3 CASES OF DEMAND ELASTICITY Because quantity demanded depends on its price, economists use a concept called elasticity. Elasticity is a measure of responsiveness
More information1.4 Applications of Functions to Economics
CHAPTER 1. FUNCTIONS AND CHANGE 18 1.4 Applications of Functions to Economics Definition. The cost function gives the total cost of producing a quantity of some good. The standard notation is: q = quantity,
More informationFOR MORE PAPERS LOGON TO
ECO401- Economics Question No: 1 ( Marks: 1 ) - Please choose one In pure capitalism, the role of government is best described as: Significant. Extensive. Nonexistent. Limited. Question No: 2 ( Marks:
More informationJacob: W hat if Framer Jacob has 10% percent of the U.S. wheat production? Is he still a competitive producer?
Microeconomics, Module 7: Competition in the Short Run (Chapter 7) Additional Illustrative Test Questions (The attached PDF file has better formatting.) Updated: June 9, 2005 Question 7.1: Pricing in a
More informationProfessor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2
Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided
More informationEcn Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman. Final Exam
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman Final Exam You have until 12:30pm to complete this exam. Be certain to put your name,
More informationMultiple Choice questions /60 Problem 1 /20 Problem 2 /20
Econ 200 Summer 2011 Dr. Alan and Prof. Crossley Midterm Solutions ANSWERS IN BOLD Multiple Choice questions /60 Problem 1 /20 Problem 2 /20 Part I: Multiple Choice Questions Instructions: Circle one and
More informationLaw of Supply. General Economics
Law of Supply General Economics Supply Willing to Offer to the Market at Various Prices during Period of Time Able to Offer to the Market at Various Prices during Period of Time General Economics: Law
More informationWeek 1 (Part 1) Introduction Econ 101
Week 1 (art 1) Introduction Econ 101 reliminary Concepts (Chapter 2 g 38-41 & 47-50) Economics is the study of how individuals and societies choose to use scarce resources that nature and previous generations
More informationThis is the midterm 1 solution guide for Fall 2012 Form A. 1) The answer to this question is A, corresponding to Form A.
This is the midterm 1 solution guide for Fall 2012 Form A. 1) The answer to this question is A, corresponding to Form A. 2) Since widgets are an inferior good (like ramen noodles) and income increases,
More informationECO402 Final Term Solved Quizzes Dear all Friends, I am not responsible for any incorrect answer so you have to check it by your own.
ECO402 Final Term Solved Quizzes Dear all Friends, I am not responsible for any incorrect answer so you have to check it by your own. 1. The "perfect information" assumption of perfect competition includes
More informationIntroductory Microeconomics. Dr. Lisa Mohanty TUI University
Introductory Microeconomics Dr. Lisa Mohanty TUI University Supply and Demand Forces that make market economies function Determines the quantity of each good produced Demand and Supply in a competitive
More informationFINAL. January 17, 2011 GROUP A
EC101 Sections 04 Fall 2010 NAME: ID #: SECTION: Instructions: FINAL January 17, 2011 GROUP A You have 90 minutes to complete the exam. There will be no extensions. Students are not allowed to go out of
More informationEcon Microeconomics Notes
Econ 120 - Microeconomics Notes Daniel Bramucci December 1, 2016 1 Section 1 - Thinking like an economist 1.1 Definitions Cost-Benefit Principle An action should be taken only when its benefit exceeds
More information