# Formula: Price of elasticity of demand= Percentage change in quantity demanded Percentage change in price

Size: px
Start display at page:

Download "Formula: Price of elasticity of demand= Percentage change in quantity demanded Percentage change in price"

Transcription

1 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~ is a units free measure of the responsiveness of the quantity demanded of a good to change in its price when all other influences on buying plans remain the same CALCULATING PRICE ELASTICITY OF DEMAND Formula: Price of elasticity of demand= Percentage change in quantity demanded Percentage change in price = %ΔQ %ΔP Proportionate change in: %ΔP= (ΔP/P average) x100 (price) %ΔQ= (ΔQ /Q average) x100 (quantity demanded) To calculate the price of elasticity of demand we express the change in price as a percentage of the average price and the change in the quantity demanded as a percentage of the average quantity. By using the average price and average quantity, we calculate the elasticity at a point on the demand curve midway between the original point and the new point. AVERAGE PRICE AND QUANTITY Average price and average quantity give the most precise measurement of elasticity (at the midpoint between the original price and the new price). By using percentages of the average price and average quantity we get the same value for the elasticity regardless if the price rises or falls. PERCENTAGES AND PROPORTIONS Elasticity is the ratio of two percentage changes. A percentage change is a proportionate change multiplied by 100. A UNITS FREE MEASURE Elasticity is a unit free measure because the percentage change in each variable is independent of the units in which the variable is measured. The ratio of the two percentages is a number without units.

2 2 MINUS SIGN AND ELASTICITY When the price of a good rises, the quantity demanded decreases. Because a positive change in price brings a negative change in the quantity demanded, the price elasticity of demand is a negative number but it is the magnitude or absolute value of the price elasticity of demand that tells us how responsive the quantity demanded is. Compare price elasticity s of demand we must use the magnitude of the elasticity and ignore the minus sign. INELASTIC AND ELASTIC DEMAND The quantity demand is constant regardless of the price. If the quantity demanded remains constant when the price changes, then the price elasticity of demand is zero and the good is said to have~ PERFECTLY INELASTIC DEMAND. If the percentage change in the quantity demanded equals the percentage change in the price, then the price elasticity equals1 and the good is said to have a~ UNIT ELASTIC DEMAND. Between the other to cases, there is the general case in which the percentage change in the quantity demanded is less than the percentage change in the price. In this case, the price elasticity of demand is between zero and 1 and the good is said to have in~ INELASTIC DEMAND. (Foods and shelter) If the quantity demanded changes by an infinitely large percentage in response too a tiny price change, then the price elasticity of demand is infinity and the good is said to have~ PERFECTLY ELASTIC DEMAND. Between the two cases before the general case in which the percentage change in the quantity demanded exceeds the percentage change in price. In this case, the price elasticity of demand is greater than 1 and the good is said to have an~ ELASTIC DEMAND (automobiles and furniture). ELASTICITY ALONG A LINEAR DEMAND CURVE Elasticity and slope are NOT the same. A linear demand curve has a constant slope but a varying elasticity. At prices above the midpoint, demand is elastic. At prices below the midpoint prices are inelastic. LOOK AT THE EXAMPLE ON PAGE 87 TO UNDERSTAND THE CALCULATIONS!!!! TOTAL REVENUE AND ELASTICITY TOTAL REVENUE~ from the scale of a good equals the price of the good multiplies by the quantity sold. When a price changes, total revenue also changes. BUT A CUT does not always decrease total revenue Depends on elasticity o If demand is elastic, a 1% price cut increases the quantity sold by more o than 1% and total revenue increases If demand is inelastic, a 1% price cut increases the quantity sold by less than 1% and total revenue decreases o If demand is unit elastic, a 1% price cut increases the quantity sold by 1% and total revenue does not change

3 3 A price cut in the elastic range brings an increase in total revenue o The percentage increase in the quantity demanded is greater than the percentage decrease in price. A price cut in inelastic range brings a decrease in total revenue The percentage increase in the quantity demanded is less than the percentage decrease in price. At unit elasticity, total revenue is at a maximum. THE TOTAL REVENUE METHOD~ is a method of estimating the price elasticity of demand by observing the change in total revenue the results from a change in the price, when all other influences on the quantity sold remain the same. o If a price cut increase total revenue, demand is elastic o If a price cut decreases total revenue, demand is inelastic o If a price cut leaves total revenue unchanged, demand is unit elastic YOU RE EXPENDITURE AND YOUR ELASTICITY When a price changes, the change in your expenditure on the good depends on your elasticity of demand o If demand is elastic, it increases the quantity you buy and your expenditure on the item increase o If demand is inelastic, increases the quantity you buy and your expenditure o on the item decreases If demand is unit elastic, it increases the quantity you buy and your expenditure on the item does not change. If you spend more when price falls= demand elastic, if you spend the same amount= demand unit elastic, if you spend less=demand inelastic THE FACTORS THAT INFLUENCE THE ELASTICITY OF DEMAND Closeness of substitutes The closer the substitute for a good or service, the more elastic is the demand for it. The degree of substitutability depends on how narrowly we define a good. A necessity has poor substitutes and is crucial for a well being (inelastic demand). A luxury has many substitutes (elastic demand). Proportion of income spent on the good Other things remaining the same, the greater the proportion of income spent on a good, the more elastic is the demand for it. Time elapsed since price change The longer the time that has elapsed since a price change, the more elastic is demand.

4 4 MORE ELASTICITIES OF DEMAND CROSS ELASTICITY OF DEMAND CROSS ELASTICITY OD DEMAND~ is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement, other things remaining the same. Cross elasticity of demand= %change in quantity demanded %Change in price of a substitute Or complement The cross elasticity of demand can be positive or negative. Positive=substitute, negative= complement A rise in the price of an object brings an increase to the demand for its substitute product, the cross elasticity of demand for the substitute with respect to the price of the original product is positive. Both the product and quantity change in the same direction. A rise in the price of a product brings a decrease in the demand for its compliment, the cross elasticity of the compliment with respect to the price of the original product is negative. The price and quantity change in opposite directions The magnitude of the cross elasticity of demand determines how far the demand curve shifts. The larger the cross elasticity (absolute value), the greater is the change in demand and the larger the shift in the demand curve. INCOME ELASTICITY OF DEMAND~ Is a measure of the responsiveness of the demand for a good or service to change in income, other things remaining the same Income elasticity of demand= %change in quantity demanded %Change in income Income Elastic Demand When the demand for a good is income elastic, the percentage of income spent on that good increases as income increases. Income Inelastic Demand When the demand for a good is inelastic, the percentage of income sent on that good decreases as income increases. Inferior Goods If the income elasticity of demand is negative, the good is an INFERIOR good. The quantity demanded of an inferior good and the amount spent on it DECREASE when income INCREASES. Low income consumers buy most of these products (potatoes, rice). ELASTIC OF SUPPLY

5 5 CALCULATING THE ELASTICITY OF SUPPLY ELASTICITY OF SUPPLY~ measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences on selling plans remain the same. Elasticity of supply= %change in quantity supplied % Change in price No matter how steep the supply curve is, if it is linear and passes through the origin, supply is unit elastic. If there is a price at which the sellers are willing to offer any quantity for sale, the supply curve is horizontal and the elasticity of supply is infinite, which is perfectly elastic. If the quantity supplied is fixed regardless of the price, the supply curve is vertical and the elasticity of supply is zero, this is perfectly inelastic. THE FACTORS THAT INFLUENCE THE ELASTICITY OF SUPPLY Resource Substitution Possibilities Some goods and services can be produced only by using unique or rare productive resources= low or perhaps zero elasticity. Other goods and services can be produced by using commonly available resources that could be used for many task= high elasticity supply. (When a good is produced in many different countries (beef) the supply of the good is highly elastic) The quantity produced can be increased but only by incurring a higher cost if a higher price is offered, the quantity supplied increases. Goods and services have elasticity between zero and infinity. Time Frame For the Supply Decision To study the influence of the amount of time elapsed since a price change, three time frames of supply: Momentary Supply: When the price of a good changes, is the immediate response of the quantity supplied is determined by the momentary supply of that good. When you don t have an option/ control it is perfectly inelastic momentary supply. When you have a control you would create a perfectly elastic momentary supply. REFEERNCE PAGE 96 FOR A GOOD EXAMPLE!!!!!! Short run supply: The response of the quantity supplied to a price change when only some of the possibilities adjustments to production can be made is determined by short run supply. Most goods have an inelastic short run supply. Increases output short run= overtime or additional workers. Decrease their output short run= lay of workers, reduce hours Long run Supply: The response of the quantity supplied to a price change after all the technologically possible ways of adjusting supply have been exploited is determined by long term supply. Most goods it is elastic or perfectly elastic.

6 6 MY ECON LAB The supply of apples in the short run will be less elastic than the supply in the long run and more elastic then the supply today If the cross elasticity of demand for a donut with respect to the price of a chocolate chip cookie is positive, then donuts and chocolate chip cookies are substitutes If the cross elasticity of demand for golf clubs with respect to the price of a golf lesson is negative, then golf clubs and golf lessons are complements o The closer the substitutes for a good or service, the more elastic is demand o The greater the proportion of income spent on a good, the more elastic is o demand The longer the time that has elapsed since a price change, the more elastic is demand In the market for farm crops momentary supply is less elastic than short run supply In the market for farm crops, short run supply is less elastic than long run supply The demand for air travel between two cities doubles. The elasticity of the supply of air travel between these cities will become more elastic, the longer the time since demand doubled

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

### 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

### Elasticity 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

### Elasticity 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

### 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

### 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

### 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

### 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

### AP 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

### The 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

### Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (4) Price Elasticity of Demand

Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (4) Price Elasticity of Demand The law of demand tells us that consumers will buy more of a product when its price declines and

### Chapter 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

### 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

### 2013 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

### 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

### 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.

### 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

### 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

### LEARNING 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

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

### ECON 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

### Chapter 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

### Section 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

### 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

### Econ 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

### 2. 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

### 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

### ECON 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

### AP 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

### Microeconomics: 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

### 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,

### Week One What is economics? Chapter 1

Week One What is economics? Chapter 1 Economics: is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives

### 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:

### ECON 101 MIDTERM 1 REVIEW SESSION SOLUTIONS (WINTER 2015) BY BENJI HUANG

ECON 101 MIDTERM 1 REVIEW SESSION SOLUTIONS (WINTER 2015) BY BENJI HUANG TABLE OF CONTENT I. CHAPTER 1: WHAT IS ECONOMICS II. CHAPTER 2: THE ECONOMIC PROBLEM III. CHAPTER 3: DEMAND AND SUPPLY IV. CHAPTER

### ELASTICITY 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

### INSTITUTE 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)

### 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

### CHAPTER 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

### 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

### Economics 323 Microeconomic Theory Fall 2015

pink=a FIRST EXAM Chapter Two Economics 323 Microeconomic Theory Fall 2015 1. The equilibrium price in a market is the price where a. supply equals demand b. no surpluses or shortages result c. no pressures

### CHAPTER 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

### Unit 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

### WJEC (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

### Chapter 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

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

MBA 640, Survey of Macroeconomics Fall 2006, Quiz #2 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The price elasticity of demand is defined

### Elasticity. 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

### 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

### 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

### Elasticity: 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

### To 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

### 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.

### ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 Session 6 The Concept of Elasticity I Lecturer: Mrs. Helen A. Seshie-Nasser, Department of Economics Contact Information: @ug.edu.gh College of Education School of Continuing

### Dr. Mahmoud A. Arafa Elasticity. Income positive negative. Cross positive negative

Introduction: When the price of a goods falls, its quantity demanded rises and when the price of the goods rises, its quantity demanded falls. This is generally known as law of demand. This law of demand

### Chapter 1: What is Economics? Definition of Economics All economic questions arise because we want more than we can get Our inability to satisfy all

Chapter 1: What is Economics? Definition of Economics All economic questions arise because we want more than we can get Our inability to satisfy all our wants is called scarcity Because we face scarcity,

### Midterm 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

### ECON 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

### Economics: 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

### 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

### 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

### ECON (ENT) COURSE LESSON THREE. Supply and Demand. CHAPTER 7 Supply and Demand. Lesson Three Supply and Demand 93

ECON (ENT) COURSE LESSON THREE Supply and Demand CHAPTER 7 Supply and Demand Lesson Three Supply and Demand 93 EXERCISES Matching (28 points) From the list below, select the term that matches each of the

### Chapter 5: Price Controls: Multiple Choice Questions Chapter 6: Elasticity Multiple Choice Questions

Chapter 5: Price Controls: Multiple Choice Questions 1. ANSWER: d. ceiling. 2. ANSWER: a. a shortage, which cannot be eliminated through market adjustment. 3. ANSWER: b. the equilibrium price is below

### Week 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

### Introduction to Agricultural Economics Agricultural Economics 105 Spring 2013 First Hour Exam Version 1

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2013 First Hour Exam Version 1 Name Section There is only ONE best correct answer per question. Place your answer on the attached

### The 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

### ELASTICITY OF DEMAND AND SUPPLY - MARKETS IN ACTION

WEEK 3 /LECTURE 3 NOTES ELASTICITY OF DEMAND AND SUPPLY - MARKETS IN ACTION Introduction We begin this session by examining elasticity, one of the most important concepts in economics. Let s assume that

### IB 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

### WHAT IS A COMPETITIVE MARKET?

Chapter 14. Firms in Competitive Markets WHAT IS A COMPETITIVE MARKET? A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. small relative

### A.P. Microeconomics. In Class Review #2

A.P. Microeconomics In Class Review #2 Pricing 1. Pricing system serves as a rationing device The market decides who gets g&s by which households are willing to pay the price for it!! Pricing a. Even when

### 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

### Microeconomics: MIE1102

TEXT CHAPTERS TOPICS 1, 2 ECONOMICS, ECONOMIC SYSTEMS, MARKET ECONOMY 3 DEMAND AND SUPPLY. MARKET EQUILIBRIUM 4 ELASTICITY OF DEMAND AND SUPPLY 5 DEMAND & CONSUMER BEHAVIOR 6 PRODUCTION FUNCTION 7 COSTS

### 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

### CLEP Microeconomics Practice Test

Practice Test Time 90 Minutes 80 Questions For each of the questions below, choose the best answer from the choices given. 1. In economics, the opportunity cost of an item or entity is (A) the out-of-pocket

### Multiple Choice questions /60 Problem 1 /20 Problem 2 /12 Problem 3 /8

Econ 200 Midterm 1 Spring 2011 March 29 2011 Instructions : 1-) The exam is 65 minutes 2-) You have to provide detailed solution to each problem 3-) Any form of cheating (Peeking to other s exam, use your

### 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

### ECON 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,

### Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 First Hour Exam Version 1

1 Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 First Hour Exam Version 1 Name Section There is only ONE best, correct answer per question. Place your answer on the attached

### First Term Weekly Test ECONOMICS. ECONOMICS STD 10 (ICSE) Ch. 3. ELASTICITY OF DEMAND

First Term Weekly Test ECONOMICS ECONOMICS STD 10 (ICSE) Ch. 3. ELASTICITY OF DEMAND 1. What is the meaning of Elasticity of Demand? Ans. The term elasticity indicates responsiveness of one variable to

### Economics 3.2. Year 13 Revision 2009

Economics 3.2 Year 13 Revision 2009 Production Possibilities Curve The PPC is also known as the Production Possibilities Frontier (PPF) It shows what combinations of goods can be produced using existing

### 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

### Elasticity 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

### INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION

ECO105 (F) / Page 1 of 12 Section A INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION Instructions: This section consists

### 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

### Econ321 Chapter 2. Demand and Supply. Demand Supply Diagram. Review of Principles. The Demand-Supply Model

Econ321 Chapter 2 Review of rinciples Demand and Supply The Demand-Supply Model Is used for analyzing competitive markets What is a competitive market? Is an equilibrium model Can illustrate the use of

### 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

### Midterm 2 - Solutions

Ecn 100 - Intermediate Microeconomic Theory University of California - Davis November 13, 2009 Instructor: John Parman Midterm 2 - Solutions You have until 11:50am to complete this exam. Be certain to

### BUS-111 MICROECONOMICS. PROBLEM SET 3 Elasticity

BUS-111 MICROECONOMICS PROBLEM SET 3 Elasticity 1. For each of the following pairs of goods, which good would you expect to have the more elastic demand, and why? a. Required textbooks or novels. b. Vodka

### Exercise questions. ECON 102. Answer all questions. Multiple Choice Questions. Choose the best answer.

Exercise questions. ECON 102 Answer all questions. Multiple Choice Questions. Choose the best answer. 1.On Saturday morning, you rank your choices for activities in the following order: go to the library,

### Angel International School - Manipay 2 nd Term Examination April Economics. Duration: 2.30 Hours. Part I

Grade 09 Angel International School - Manipay 2 nd Term Examination April. 2018 Economics Duration: 2.30 Hours Index No:- Part I 1) What is meant by opportunity cost? a. The best alternative forgone b.

### Supply and Demand. Objective 8.04

Supply and Demand Objective 8.04 Supply and Demand Pages 258-259 259 copy bold terms and give a definition or description of each. Page 261 Copy the questions Worksheet A-2A 1. Surplus When the amount

### Contents. Consumer Choice: Individual and Market Demand- Demand and Elasticity. I) Markets and Prices. II) Demand Side. III) The Supply Side

Consumer Choice: Individual and Market Demand- Demand and Elasticity Dr. Ashraf Samir Website: ashraffeps.yolasite.com Contents I) Markets and Prices II) Demand Side III) The Supply Side IV) Market Equilibrium

### DEMAND. Economics Unit 2 Just the Facts Handout

DEMAND Economics Unit 2 Just the Facts Handout What is Demand? A market is a place where people buy and sell things. A market has two sides. There is a buying side and a selling side. The buying side of

### Jacob: 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

### ECON 203 Homework #2 Solutions. 1) Can a set of indifference curves be upward sloping? If so, what would this tell you about the two goods?

1) Can a set of indifference curves be upward sloping? If so, what would this tell you about the two goods? A set of indifference curves can be upward sloping if we violate assumption number three; more

### Module Tag. Com_P2_M6. PAPER No. 2 : Managerial Economics MODULE No. 6: methods of measuring Elasticity of demand

Subject Commerce Paper No and Title Module No and Title Module Tag : Managerial Economics 6: Measurement of elasticity Com_P_M6 TABLE OF CONTENTS 1) Learning Outcomes ) Methods of measuring elasticity

### David Kelly. Elasticity

Elasticity Elasticity is a measure of responsiveness (sensitivity) of the quantity demanded for a good or service to a change in some variable (price, income, related goods) Price Elasticity of Demand

### CHAPTER 4, SECTION 1

DAILY LECTURE CHAPTER 4, SECTION 1 Understanding Demand What Is Demand? Demand is the willingness and ability of buyers to purchase different quantities of a good, at different prices, during a specific