ECON 101 Introduction to Economics1

Size: px
Start display at page:

Download "ECON 101 Introduction to Economics1"

Transcription

1 ECON 101 Introduction to Economics1 Session 6 The Concept of Elasticity I Lecturer: Mrs. Helen A. Seshie-Nasser, Department of Economics Contact College of Education School of Continuing and Distance Education 2014/ /2017

2 Session Overview When price and variables change, some goods experience a bigger change in quantity demanded than others. This session provides explanation to the extent of change in quantity when there is a change in price of goods and services (and change in other variables). Slide 2

3 Session Objectives At the end of the session, the student should be able to: Understand Own Price Elasticity of Demand and its measurements. Know how to measure own price elasticity using Point and Arc methods and the interpretation of the results. Understand elasticity along a straight line demand curve. Appreciate the relationship between Elasticity and Total Revenue. Enumerate and explain the determinants of elasticity. Understand Cross-price Elasticity of Demand and its interpretation Understand Income Elasticity of Demand and its interpretation Slide 3

4 Session Outline The key topics to be covered in the session are as follows: Demand Elasticity Price Elasticity of Demand Five Cases of Elasticity Computation of Price elasticity of demand Total Revenue and Price elasticity of demand Determinants of Price elasticity of demand Applications of Elasticity of demand Slide 4

5 Reading List Lipsey R. G. and K. A. Chrystal. (2007). Economics. 11 th Edition. Oxford University Press. Bade R. and M. Parkin. (2009). Foundations of Microeconomics. 4 th Edition. Boston: Pearson Education Inc., Begg. D. Fischer S. and R. Dornbusch. (2003). Economics. 7 th Edition. McGraw-Hill Slide 5

6 Demand Elasticity Elasticity of demand is the relationship between the Quantity demanded of a good on one hand, and the price of the good, the prices of related good and the income of the consumer on the other hand. In other words, it is the measure of the responsiveness of quantity demanded to changes in the price of a good and other economic conditions. Slide 6

7 Price Elasticity of Demand It is the measure of responsiveness of quantity demanded to the changes in the price of the good. It is the ratio of the percentage change in the quantity of a good demanded to a given percentage change in its price. Mathematically; Slide 7

8 Price Elasticity of Demand Interpretation Elasticity of Demand means quantity demanded will be twice any percentage change in price. The sign of price elasticity of demand will be negative because the demand curve is negatively sloped. In the interpretation, we can ignore the sign Slide 8

9 Five Cases of Elasticity Fairly elastic demand: When Demand is said to price elastic if a slight change in price brings about a more than proportionate change in quantity demanded. Quantity demanded responds strongly to changes in price. Price P 1 P 2 0 Q 1 Qty Q 2 DD Slide 9

10 Five Cases of Elasticity Unitary elastic: When Demand is unit elastic if a change in price brings about a proportionate change in quantity demanded P 1 P 2 D 0 Q 1 Q 2 Q 4 Slide 10

11 Five Cases of Elasticity Perfectly elastic: When If a negligible change in price results into an infinite change in quantity demanded, demand is said to be perfectly elastic. Price P DD 0 Slide 11 Qty

12 Five Cases of Elasticity Fairly inelastic demand: When Demand is inelastic if a change in price leads to a less than proportionate change in quantity demanded. Quantity demanded does not respond strongly to price changes. Price P 1 P 2 Q 1 Q 2 Slide 12 DD Q ty

13 Five Cases of Elasticity Perfectly inelastic demand: When If quantity demanded does not respond to change in price. The demand curve is parallel to the price line. Price P 2 P 1 Q 1 Qty Slide 13

14 Computing the Price Elasticity of Demand The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price. Price elasticity of demand = Percentage change in quantity demanded Percentage change in price Slide 14

15 Computing the Price Elasticity of Demand Price elasticity of demand = Percentage change in quantity demanded Percentage change in price Example: If the price of an ice cream cone increases from Gh 2.00 to Gh 2.20 and the amount you buy falls from 10 to 8 cones, then your elasticity of demand would be calculated as: ( 10 8) % ( ) % Slide 15

16 Arc Elasticity or the Midpoint Method The midpoint formula is preferable when calculating the price elasticity of demand because it gives the same answer regardless of the direction of the change. Price elasticity of demand = ( Q2 Q1 ) / [( Q2 Q1 ) / 2 ] ( P P ) / [( P P ) / 2] Slide 16

17 Computing the Price Elasticity of Demand Example: If the price of an ice cream cone increases from Gh 2.00 to Gh 2.20 and the amount you buy falls from 10 to 8 cones, then your elasticity of demand, using the midpoint formula, would be calculated as: ( 10 8) ( 10 8) / 2 ( ) ( ) / 2 22%. 9. 5% 2 32 P 1 A P 2 Slide 17 Price Q 1 Q 2 B DD Q ty

18 Point Elasticity Finding elasticity at a given point on the demand curve. Price P 1 A P 2 Q 1 Q 2 DD Q ty Slide 18

19 Problem Sets Example I When the price of taxi transportation increases from 0.75 to 1, the number of committers willing to take taxi declines from 150 to 100, calculate the price elasticity of demand at the initial point. Example II A change in the price of photocopies from 5p to 4p causes the quantity demanded to increase from 50 to 55. Calculate the price elasticity of demand at the new point. Question Using elasticity concept, explain why government does not reduce the price of fuel when world price falls? Slide 19

20 Elasticity along straight line downward sloping demand curve Elasticity is not constant along a straight line downward sloping demand curve. It increases as one moves up the demand curve. Price Quantity Slide 20

21 Total Revenue/spending and the Price Elasticity of Demand Total revenue is the amount paid by buyers and received by sellers of a good. Computed as the price of the good times the quantity sold. TR = P x Q Slide 21

22 Total Revenue Price 4 P P Q = 400 (revenue) Demand Quantity Q Slide 22

23 Elasticity and Total Revenue along a Linear Demand Curve With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. Thus, total revenue increases. With an elastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately larger. Thus, total revenue decreases. Slide 23

24 Figure 3: How Total Revenue Changes When Price Changes: Inelastic Demand Price An Increase in price from Ghc1 to Ghc3 Price leads to an Increase in total revenue from $100 to $240 3 Revenue = Ghc240 1 Revenue = 100 Demand Demand Quantity 0 80 Quantity Slide 24

25 Figure 4: How Total Revenue Changes When Price Changes: Elastic Demand Price Price An Increase in price from Ghc4 to Ghc5 leads to an decrease in total revenue from Ghc200 to Ghc Demand Demand Revenue = ȼ200 Revenue = ȼ Quantity 0 20 Quantity Slide 25

26 Elasticity of a Linear Demand Curve Slide 26

27 Elasticity and Total Revenue The relationship between elasticity and total revenue is illustrated in the diagram. Revenue Total Revenue curve Qty On a straight line demand curve, the elastic region presents increasing total revenue with decreases in price. At the unit elastic region total revenue is constant with decreases in price while at the inelastic region total revenue declines. Slide 27

28 Elasticity and Total Revenue Therefore, a firm considering a price change and its effect on total revenue would be better off with a decrease in price if the demand for its product is elastic; and an increase in price if the demand for the product is inelastic. Slide 28

29 Determinants of Price Elasticity of Demand Availability of substitutes. Elasticity increases with availability of substitutes to a product. Availability of close substitutes may depend on the definition of the product and the time period under consideration. The more broadly defined the good, the fewer the substitutes and the more narrowly defined the good the greater the substitutes. Example: Food has no substitutes, but a type of food ( kenkey ) has close substitutes. We have Ga kenkey and Fante kenkey Car has train, bus, bicycle and walking as close substitutes. But Toyota has Ford, Chrysler, Benz, Honda, VW, Nissan.etc as close substitutes Slide 29

30 Application Question The Government is considering ways of increasing its tax revenue by increasing tax on jewellery or on cigarette. You are an economist and a consultant. Advise government on what to do and give reasons for your recommendations. Slide 30

31 Determinants of Price Elasticity of Demand 2. Proportion of income spent on the good. As the proportion increases elasticity increases, and vice versa. 2. Luxuries and necessities: demand for luxurious goods is elastic while necessities have inelastic demand. 3. Habit formation: The more a consumption of a product is out of habit, the more inelastic is the demand for it. Slide 31

32 Determinants of Price Elasticity of Demand 4. Time: As time passes, buyers have greater opportunities to be responsive to a price change. As time passes, one has more chances to change consumption by finding substitutes, changing lifestyle, etc. Example, increase in electricity tariff. As time passes, a household may replace a stove with a gas cooker, change bulbs to energy-saving ones, replace an old more powerconsuming fridge with a newer fridge, generally reduce the number of electric gadgets. Thus, in the short run elasticity is lower than in the long run Slide 32

33 Cross-Price Elasticity of Demand It is defined as the ratio of the percent change in demand for a good to a given percentage change in the price of another good. x and y are substitutes x and y are complements Slide 33

34 Income Elasticity of Demand Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers income. It is computed as the percentage change in the quantity demanded divided by the percentage change in income. Income elasticity of demand = Percentage change in quantity demanded Percentage change in income Slide 34

35 Computing Income Elasticity the commodity is a normal good the commodity is an inferior good Slide 35

36 Income Elasticity Types of Goods Normal Goods Inferior Goods Higher income raises the quantity demanded for normal goods but lowers the quantity demanded for inferior goods. Slide 36

37 Income Elasticity Goods consumers regard as necessities tend to be income inelastic Examples include food, fuel, clothing, utilities, and medical services. Goods consumers regard as luxuries tend to be income elastic. Examples include sports cars, and expensive foods. Slide 37

Elasticity and Its Applications. Copyright 2004 South-Western

Elasticity 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 information

2007 Thomson South-Western

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 information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 12 Market Structures(Monopoly) Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 11 Market Structures(Perfect Competition) Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 10 Cost Concept Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School of Continuing

More information

Copyright 2010 Pearson Education Canada

Copyright 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 information

1.2.3 Price, Income and Cross Elasticities of Demand

1.2.3 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 information

Lesson-9. Elasticity of Supply and Demand

Lesson-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 information

Elasticity of Demand

Elasticity of Demand Elasticity of Demand Elasticity of Demand The law of demand states that an increase in price causes a decrease in quantity demanded (and vice-versa) Question: How much quantity demanded changes in response

More information

ECONS 101 Introduction to Economics 1

ECONS 101 Introduction to Economics 1 ECONS 101 Introduction to Economics 1 Session 2 Introduction II Lecturer: Mrs. Hellen Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School of Continuing

More information

Chapter 6 Elasticity: The Responsiveness of Demand and Supply

Chapter 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 information

Q.1 Distinguish between increase in demand and increase in quantity demanded of a commodity.

Q.1 Distinguish between increase in demand and increase in quantity demanded of a commodity. Q.1 Distinguish between increase in demand and increase in quantity demanded of a commodity. Q. 2 Given price of a good, how does a consumer decide as to how much of that good to buy? Q. 3 A consumer consumers

More information

Chapter 6 Lecture - Elasticity: The Responsiveness of Demand and Supply

Chapter 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 information

Principles of MicroEconomics: Econ102

Principles of MicroEconomics: Econ102 Principles of MicroEconomics: Econ102 Price Elasticity of Demand: The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of

More information

CHAPTER 2: DEMAND AND SUPPLY

CHAPTER 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 information

UNIT 2 CONSUMER'S BEHAVIOUR & THEORY OF DEMAND POINTS TO REMEMBER Consumer : is an economic agent who consumes final goods and services. Total utility : It is the sum of satisfaction from consumption of

More information

ECON 251. Exam 1 Pink. Fall 2013

ECON 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 information

Chapter 6. Elasticity

Chapter 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 information

Law of Supply. General Economics

Law 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 information

Topic 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 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 information

Chapter 3 Quantitative Demand Analysis

Chapter 3 Quantitative Demand Analysis Chapter 3 Quantitative Demand Analysis EX1: Suppose a 10 percent price decrease causes consumers to increase their purchases by 30%. What s the price elasticity? EX2: Suppose the 10 percent decrease in

More information

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

More information

Chapter 6 Elasticity: The Responsiveness of Demand and Supply

Chapter 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 information

Chapter 2 The Basics of Supply and Demand

Chapter 2 The Basics of Supply and Demand Chapter 2 The Basics of Supply and Demand Read Pindyck and Rubinfeld (2013), Chapter 2 Microeconomics, 8 h Edition by R.S. Pindyck and D.L. Rubinfeld Adapted by Chairat Aemkulwat for Econ I: 2900111 Chapter

More information

PICK ONLY ONE BEST ANSWER FOR EACH BINARY CHOICE OR MULTIPLE CHOICE QUESTION.

PICK ONLY ONE BEST ANSWER FOR EACH BINARY CHOICE OR MULTIPLE CHOICE QUESTION. Econ 101 Summer 2015 Answers to Second Mid-term Date: June 15, 2015 Student Name Version 1 READ THESE INSTRUCTIONS CAREFULLY. DO NOT BEGIN WORKING UNTIL THE PROCTOR TELLS YOU TO DO SO You have 75 minutes

More information

DEMAND ESTIMATION (PART I)

DEMAND ESTIMATION (PART I) BEC 30325: MANAGERIAL ECONOMICS Session 02 DEMAND ESTIMATION (PART I) Dr. Sumudu Perera Session Outline Definition of Demand Law of Demand Price Elasticity of Demand Elasticity and Total Revenue Income

More information

Chapter 4. Elasticity. In this chapter you will learn to. Price Elasticity of Demand

Chapter 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 information

2013 sample MC questions - 90

2013 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 information

CH 5 sample questions - 80

CH 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 information

Ch. 7 outline. 5 principles that underlie consumer behavior

Ch. 7 outline. 5 principles that underlie consumer behavior Ch. 7 outline The Fundamentals of Consumer Choice The focus of this chapter is on how consumers allocate (distribute) their income. Prices of goods, relative to one another, have an important role in how

More information

Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ $ $ $ $10 2 8

Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ $ $ $ $10 2 8 Econ 101 Summer 2005 In class Assignment 2 Please select the correct answer from the ones given Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ 2 18 3 $ 4 14 4 $ 6 10 5 $ 8 6 6 $10 2 8

More information

Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics. Spring 2009 ECU Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

More information

Unit 1 DEMAND AND SUPPLY ANALYSIS

Unit 1 DEMAND AND SUPPLY ANALYSIS Unit 1 DEMAND AND SUPPLY ANALYSIS 1 LESSON 1 ELASTICITY OF DEMAND AND APPLICATIONS 1. STRUCTURE 1.1. Objective 1.2. Introduction 1.3. Meaning of Elasticity of Demand 1.4. Types of Elasticity of Demand

More information

Elasticity 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 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 information

Assignment 2: Supply and Demand

Assignment 2: Supply and Demand Assignment 2: Supply and Demand (Reference: Mankiw and Taylor, Chapters 4, 5, 6) Multiple Choice 1. Suppose that a large dairy farmer is able to raise the market price of milk by restricting milk supply

More information

Econ 2113 Test #2 Dr. Rupp Fall 2008

Econ 2113 Test #2 Dr. Rupp Fall 2008 D Econ 2113 Test #2 Dr. Rupp Fall 2008 Name Pledge: I have neither given nor received aid on this exam Version A Signature: Directions: Bubble in name: Last, First Bubble in 00 in Special Codes Sign the

More information

Multiple Choice Part II, A Part II, B Part III Total

Multiple Choice Part II, A Part II, B Part III Total SIMON FRASER UNIVERSITY ECON 103 (2007-2) MIDTERM EXAM NAME Student # Tutorial # Multiple Choice Part II, A Part II, B Part III Total PART I. MULTIPLE CHOICE (56%, 1.75 points each). Answer on the bubble

More information

1 of 14 5/1/2014 4:56 PM

1 of 14 5/1/2014 4:56 PM 1 of 14 5/1/2014 4:56 PM Any point on the budget constraint Gives the consumer the highest level of utility. Represent a combination of two goods that are affordable. Represents combinations of two goods

More information

Econ Test 2B Dr. Rupp Tuesday, March 3, 2009 Pledge: I have neither given or received aid on this exam Signature

Econ Test 2B Dr. Rupp Tuesday, March 3, 2009 Pledge: I have neither given or received aid on this exam Signature Econ 2113 - Test 2B Dr. Rupp Tuesday, March 3, 2009 Name Pledge: I have neither given or received aid on this exam Signature Multiple Choice Identify the letter of the choice that best completes the statement

More information

Elas%city Mr Traynor. Economics Note 5 Leaving Cert 5 th Year. St. Michaels College, Ailesbury Rd

Elas%city Mr Traynor. Economics Note 5 Leaving Cert 5 th Year. St. Michaels College, Ailesbury Rd Elas%city Mr Traynor Economics Note 5 Leaving Cert 5 th Year, Ailesbury Rd ELASTICITY When we introduced demand we noeced that consumers usually buy more of a good when its price is low or their income

More information

Introduction. Consumer Choice 20/09/2017

Introduction. Consumer Choice 20/09/2017 Consumer Choice Introduction Managerial Problem Paying employees to relocate: when Google wants to transfer an employee from its Seattle office to its London branch, it has to decide how much compensation

More information

Study Unit 1. Elasticity SIM University. All rights reserved. Introduction

Study Unit 1. Elasticity SIM University. All rights reserved. Introduction Study Unit 1 Elasticity Introduction Elasticity of Demand Elasticity and Total Expenditure Income Elasticity of Demand Cross Elasticity of Demand Elasticity of Supply Elasticity of Demand Elasticity of

More information

Chapter 4: Understanding Demand

Chapter 4: Understanding Demand SCHS SOCIAL STUDIES What you need to know UNIT TWO 1. What a competitive market is and how it is described by the supply and demand model 2. What a supply curve shows 3. The difference between a movement

More information

Econ 1 Review Session 1. with Maggie aproberts-warren UCSC Fall 2012

Econ 1 Review Session 1. with Maggie aproberts-warren UCSC Fall 2012 Econ 1 Review Session 1 with Maggie aproberts-warren UCSC Fall 2012 Introduction What will be covered in the exam? Chs. 1-8 What will the exam look like? 20 multiple choice questions 4 short answer/graphing

More information

Elasticity. Shape of the Demand Curve

Elasticity. Shape of the Demand Curve Lecture 4 Elasticity Eric Doviak Principles of Microeconomics Shape of the Demand Curve When prices change, change in quantity demanded depends on shape of demand curve Consumer 1 has a very elastic demand

More information

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions

Chapter 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 information

Bremen School District 228 Social Studies Common Assessment 2: Midterm

Bremen School District 228 Social Studies Common Assessment 2: Midterm Bremen School District 228 Social Studies Common Assessment 2: Midterm AP Microeconomics 55 Minutes 60 Questions Directions: Each of the questions or incomplete statements in this exam is followed by five

More information

1. T F The resources that are available to meet society s needs are scarce.

1. T F The resources that are available to meet society s needs are scarce. 1. T F The resources that are available to meet society s needs are scarce. 2. T F The marginal rate of substitution is the rate of exchange of pairs of consumption goods or services to increase utility

More information

The Concept of Elasticity. The Elasticity of Demand. Laugher Curve. The Concept of Elasticity. Sign of Price Elasticity.

The Concept of Elasticity. The Elasticity of Demand. Laugher Curve. The Concept of Elasticity. Sign of Price Elasticity. The oncept of Elasticity The Elasticity of Demand Elasticity is a measure of the responsiveness of one variable to another. The greater the elasticity, the greater the responsiveness. hapter Laugher urve

More information

ELASTICITY AND ITS APPLICATION. J. Mao

ELASTICITY AND ITS APPLICATION. J. Mao ELASTICITY AND ITS APPLICATION J. Mao 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

More information

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Subtleties 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 information

Econ Principles of Microeconomics - Assignment 1

Econ Principles of Microeconomics - Assignment 1 Econ 2302 - Principles of Microeconomics - Assignment 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A likely effect of government policies that redistribute

More information

.the key ideas. Webnote 122

.the key ideas. Webnote 122 .the key ideas. 1 Webnote 122 yed-income demand xed-cross demand pes-supply ped-demand 4 alternative elasticities Some key points to note for your answerability Webnote 123 2 Yed-income elasticity of demand

More information

ECO 610: Lecture 2. Theory of Demand; Elasticity; and Marketing and Consumer Behavior

ECO 610: Lecture 2. Theory of Demand; Elasticity; and Marketing and Consumer Behavior ECO 610: Lecture 2 Theory of Demand; Elasticity; and Marketing and Consumer Behavior Theory of Demand; Elasticity; and Marketing and Consumer Behavior: Outline Demand Theory and Marketing Research Households

More information

TheRevisionGuide (www.therevisionguide.com) is a free online resource for Economics and Business Studies.

TheRevisionGuide (www.therevisionguide.com) is a free online resource for Economics and Business Studies. TheRevisionGuide.com Accelerating your potential Economics Revision AS Economics Demand Notes by: Apsara Sumanasiri Student Name : Date:. TheRevisionGuide (www.therevisionguide.com) is a free online resource

More information

ELASTICITY. Chapt er. Key Concepts

ELASTICITY. Chapt er. Key Concepts Chapt er 4 ELASTICITY Key Concepts Price Elasticity of Demand The price elasticity of demand is a units-free measure of responsiveness of the quantity demanded of a good to a change in its price when all

More information

ECON 230-D2-002 Version 2. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

ECON 230-D2-002 Version 2. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 230-D2-002 Version 2 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The two largest auto manufacturers, Toyota and GM, have experimented

More information

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.

More information

Supply, Demand, and Government Policies. Copyright 2004 South-Western

Supply, Demand, and Government Policies. Copyright 2004 South-Western Supply, Demand, and Government Policies Copyright 2004 South-Western Supply, Demand, and Government Policies In a free, unregulated market system, market forces establish equilibrium prices and exchange

More information

Elasticity. Krzysztof Kołodziejczyk, PhD

Elasticity. Krzysztof Kołodziejczyk, PhD Elasticity Krzysztof Kołodziejczyk, PhD https://flic.kr/p/j4fg3d Agenda 1. Price elasticity of demand 2. Extreme cases of elasticity 3. Elasticity and pricing 4. Elasticity in the long-term and short-term

More information

Chapter 2 Market analysis

Chapter 2 Market analysis Chapter 2 Market analysis Market analysis is concerned with collecting and interpreting data about customers and the market so that businesses adopt a relevant marketing strategy. Businesses carry out

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. HW 2 - Micro - Machiorlatti MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is measured by the price elasticity of supply? 1) A) The price

More information

JANUARY EXAMINATIONS 2005

JANUARY EXAMINATIONS 2005 No. of Pages: (A) 7 No. of Questions: 26 EC1000A ' JANUARY EXAMINATIONS 2005 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates This paper

More information

Homework 2 Answer Key

Homework 2 Answer Key Econ 226 Principles of Microeconomics Fall, 24 Dr. Kathryn Wilson Due Date: Tuesday, September 28 th Homework 2 Answer Key 1. When the of movie admissions increases from $7 to $8, the demanded falls from

More information

The Basics of Supply and Demand

The Basics of Supply and Demand C H A P T E R 2 The Basics of Supply and Demand Prepared by: Fernando & Yvonn Quijano CHAPTER 2 OUTLINE 2.1 Supply and Demand 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities

More information

Interpreting Price Elasticity of Demand

Interpreting Price Elasticity of Demand INTRO Go to page: Go to chapter Bookmarks Printed Page 466 Interpreting Price 9 Behind the 48.2 The Price of Supply 48.3 An Menagerie Producer 49.1 Consumer and the 49.2 Producer and the 50.1 Consumer,

More information

Exam 01 - ECON Friday, October 1st

Exam 01 - ECON Friday, October 1st Name: ID: A Exam 01 - ECON 2301-05 - Friday, October 1st 1. Demand is said to be inelastic if the a. quantity demanded changes proportionately the same as price. b. quantity demanded changes proportionately

More information

Sample. Final Exam Sample Instructor: Jin Luo

Sample. Final Exam Sample Instructor: Jin Luo Final Exam Instructor: Jin Luo Multiple Choice (2 *30 = 60) Identify the letter of the choice that best completes the statement or answers the question. 1. Price takers refer to buyers and sellers in a.

More information

The Basics of Supply and Demand

The Basics of Supply and Demand C H A P T E R 2 The Basics of Supply and Demand Prepared by: Fernando & Yvonn Quijano CHAPTER 2 OUTLINE 2.1 Supply and Demand 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities

More information

Lecture 3 Mankiw chapters 4 and 5

Lecture 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 information

Please recall how TP, MP and AP are plotted

Please recall how TP, MP and AP are plotted Please recall how TP, MP and AP are plotted The Marginal Revenue Product (MRP) The increase in total revenue for every additional labor unit employed. Units of Labor TP MP Product Price TR MRP ( TR/ L)

More information

1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States.

1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. 1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. the effect of income redistribution on work effort. d. how the allocation of

More information

FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 DAY AND TIME YOUR SECTION MEETS:

FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 DAY AND TIME YOUR SECTION MEETS: FIRST MIDTERM EXAMINATION ECON 200 Spring 2007 STUDENT'S NAME: STUDENT'S IDENTIFICATION NUMBER: DAY AND TIME YOUR SECTION MEETS: BEFORE YOU BEGIN PLEASE MAKE SURE THAT YOUR EXAMINATION HAS BEEN DUPLICATED

More information

Microeconomics Quiz #1 Study Guide

Microeconomics Quiz #1 Study Guide Microeconomics Quiz #1 Study Guide Note: Below is a list of study questions for the upcoming Quiz #1 (Tue., March 29th). The quiz covers Chapter 4 and 5 and supplementary materials presented in class and

More information

Econ 101, sections 2 and 6, S06 Schroeter Exam #2, Red. Choose the single best answer for each question.

Econ 101, sections 2 and 6, S06 Schroeter Exam #2, Red. Choose the single best answer for each question. Econ 101, sections 2 and 6, S06 Schroeter Exam #2, Red Choose the single best answer for each question. 1. If the own-price elasticity of demand for a good is -2.0, this implies that consumers would a.

More information

Answers to RSPL/2. Section - A

Answers to RSPL/2. Section - A Answers to RSL/2 1. (a) Section - A 2. Returns to a factor refers to a change in total output when only one input is changed, keeping other inputs unchanged. 3. (c) 4. Negative 5. While analysing the impact

More information

Exam 3 Practice Questions

Exam 3 Practice Questions Exam 3 Practice Questions 1. The price elasticity of demand is a measure of: a) how quickly a particular market reaches equilibrium. b) the change in supply associated with lower prices. c) the percent

More information

Lesson 3. Adam Smith and the Free Market 1/27/2013. Markets and Competition. Demand. Unit 2. Krugman, Module 5 pp

Lesson 3. Adam Smith and the Free Market 1/27/2013. Markets and Competition. Demand. Unit 2. Krugman, Module 5 pp Unit 2 Adam Smith and the Free Market Lesson 3 Krugman, Module 5 pp. 7-5 0 Markets and Competition A market is a group of buyers and sellers of a particular product. A competitive market is one with many

More information

Multiple Choice Identify the letter of the choice that best completes the statement or answers the question.

Multiple 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 information

ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION

ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION YOUR NAME Assigned Seat ECO201: PRINCIPLES OF MICROECONOMICS FIRST MIDTERM EXAMINATION Prof. Bill Even October 7, 2013 FORM 1 Directions 1. Fill in your scantron with your unique-id and the form number

More information

Introduction Question Bank

Introduction Question Bank Introduction Question Bank 1. Science of wealth is the definition given by 2. Economics is the study of mankind of the ordinary business of life given by 3. Science which tells about what it is & what

More information

DEMAND ANALYSIS. Samir K Mahajan, M.Sc, Ph.D.,UGC-NET Assistant Professor (Economics)

DEMAND ANALYSIS. Samir K Mahajan, M.Sc, Ph.D.,UGC-NET Assistant Professor (Economics) DEMAND ANALYSIS Samir K Mahajan, M.Sc, Ph.D.,UGC-NET Assistant Professor (Economics) MEANING OF DEMAND Demand is effective desire which can be fulfilled. Demand must satisfy the following prerequisites:

More information

ECON 1000 D. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.

ECON 1000 D. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work. It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hours. Work on your own. Keep your notes and textbook closed. Attempt every question.

More information

OCR Economics A-level

OCR Economics A-level OCR Economics A-level Microeconomics Topic 2: How Competitive Markets Work 2.3 Supply and demand, and the interaction of markets Notes A market is created when buyers and sellers interact. A sub-market

More information

2007 NATIONAL ECONOMICS CHALLENGE NCEE/Goldman Sachs Foundation

2007 NATIONAL ECONOMICS CHALLENGE NCEE/Goldman Sachs Foundation 2007 NATIONAL ECONOMICS CHALLENGE NCEE/Goldman Sachs Foundation National Round I: Microeconomics David Ricardo Division 1. If your income tax liability is $15,000 and your income is $60,000, your A. average

More information

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions MICROECONOMICS SECTION I Time - 70 minutes 60 Questions Directions: Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best

More information

Demand and Supply: The Basics

Demand and Supply: The Basics 2 Demand and Supply: The Basics 21 Chapter 2 Introduction The most basic, and in many ways the most lasting, lesson to be learnt from Economics 11 relates to the fundamental concepts of demand and supply

More information

VANCOUVER ISLAND UNIVERSITY. ECON211: Principles of Microeconomics, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature:

VANCOUVER ISLAND UNIVERSITY. ECON211: Principles of Microeconomics, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature: Important: Please remember it is a sample exam. Number of questions in each section and structure of questions in Part B would vary as discussed in class VANCOUVER ISLAND UNIVERSITY ECON211: Principles

More information

11.1 Monopoly Profit Maximization

11.1 Monopoly Profit Maximization 11.1 Monopoly Profit Maximization CHAPTER 11 MONOPOLY A monopoly is the only supplier of a good for which there is no close substitute. Monopolies are not price takers like competitive firms Monopoly output

More information

UNIT 4 PRACTICE EXAM

UNIT 4 PRACTICE EXAM UNIT 4 PRACTICE EXAM 1. The prices paid for resources affect A. the money incomes of households in the economy B. the allocation of resources among different firms and industries in the economy C. the

More information

Course Information Introduction to Economics I (ECON 1001)

Course Information Introduction to Economics I (ECON 1001) Course Information Introduction to Economics I (ECON 1001) Course Code ECON 1001 Course Title Course Discipline Introduction to Economics I Economics Units of Credit Three (3) Pre-requisites None Semester

More information

Extra Credit. Student:

Extra Credit. Student: Extra Credit Student: 1. A glass company making windows for houses also makes windows for other things (cars, boats, planes, etc.). We would expect its supply curve for house windows to be: A. Dependent

More information

Chapter 11. Monopoly

Chapter 11. Monopoly Chapter 11 Monopoly Topics Monopoly Profit Maximization. Market Power. Welfare Effects of Monopoly. Cost Advantages That Create Monopolies. Government Actions That Create Monopolies. Government Actions

More information

Amherst College Department of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity

Amherst College Department of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity Amherst College epartment of Economics Economics 111 Section 3 Fall 2012 Monday, September 17 Lecture: Elasticity Market emand and Market Supply Curves Market demand curve: How many cans of beer would

More information

Mechanism through which buyers (demanders) and sellers (suppliers) communicate to trade goods and services.

Mechanism through which buyers (demanders) and sellers (suppliers) communicate to trade goods and services. By the end of this learning plan, you will be able to: Use marginal (Cost-Benefit) analysis in decision-making Apply supply and demand analysis to price determination Assess the role price plays in a market

More information

PowerPoint Lecture Notes for Chapter 4. Principles of Microeconomics 6 th edition, by N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich

PowerPoint Lecture Notes for Chapter 4. Principles of Microeconomics 6 th edition, by N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich oweroint Lecture Notes for Chapter 4 The Market Forces of Supply and Demand rinciples of Microeconomics 6 th edition, by N. Gregory Mankiw remium oweroint Slides by Ron Cronovich N. Gregory Mankiw Microeconomics

More information

Supply and Demand. The Basis of Microeconomics

Supply and Demand. The Basis of Microeconomics Supply and Demand The Basis of Microeconomics Learning Targets I can explain how the forces of supply and demand impact a market economy and what variables affect these forces. (Including a discussion

More information

07. Engel s Law of family expenditure and significance. - Consumer's surplus estimation and applications.

07. Engel s Law of family expenditure and significance. - Consumer's surplus estimation and applications. 07. Engel s Law of family expenditure and significance. - Consumer's surplus estimation and applications. Engel s Law on Family Expenditure Every family has to spend money on necessaries of life, education,

More information

Elasticity. 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. 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 information

Chapter 1: The Ten Lessons in Economics

Chapter 1: The Ten Lessons in Economics Textbook Notes Page 1 Chapter 1: The Ten Lessons in Economics Saturday, 25 May 2013 1:09 PM Economics: The study of how society manages its scarce resources Individual Decision-Making Lesson 1: People

More information