# AP Microeconomics Chapter 6 Outline

Size: px
Start display at page:

Transcription

1 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 revenue test for price elasticity of demand. 3. What price elasticity of supply is and how it can be applied. 4. What cross elasticity of demand and income elasticity of demand are and how they can be applied. B. Elasticity of demand measures how much the quantity demanded changes with a given change in price of the item, change in consumer income, or change in the price of a related product. C. Price elasticity is a concept that also relates to supply. D. The chapter explores both elasticity of supply and demand and applications of the concept. II. Price Elasticity of Demand A. The law of demand tells us that consumers will respond to a price decrease by buying more of a product (other things remaining constant), but it does not tell us how much more. B. The degree of consumer responsiveness or sensitivity to a change in price is measured by the price elasticity of demand. 1. If consumers are relatively responsive to price changes, demand is said to be elastic. 2. If consumers are relatively unresponsive to price changes, demand is said to be inelastic. 3. Note that with both elastic and inelastic demand, consumers behave according to the law of demand; that is, they are responsive to price changes. The terms elastic or inelastic describe the degree of responsiveness. A precise definition of what we mean by responsive or unresponsive follows. C. Price elasticity coefficient formula: Quantitative measure of elasticity Ed = percentage change in quantity demanded / percentage change in price. 1. Using averages the midpoint formula a. Using traditional calculations, the measured elasticity over a given range of prices is sensitive to whether one starts at the higher price and goes down, or the lower price and goes up. The midpoint formula calculates the average elasticity over a range of prices to alleviate that problem. b. The midpoint formula for elasticity is: Ed = [(change in Q) / (sum of Q s/2)] divided by [(change in P) / (sum of P s/2)] 2. Emphasis: The percentage changes are compared, not the absolute changes. a. Absolute changes depend on the choice of units. For example, a \$1 change in the price of a \$10,000 car is very different from a \$1 change in the price of a \$1

2 can of soft drink. The car price is rising by a fraction of one percent, while the soft drink price is rising 100 percent. b. Percentages also make it possible to compare elasticities of demand for different products. 3. Because of the inverse relationship between price and quantity demanded, the actual elasticity of demand will be a negative number. However, we ignore the minus sign and use absolute value of both percentage changes. 4. Interpreting Elasticity a. Demand is elastic if a specific percentage change in price results in a larger percentage change in quantity demanded (E>1). b. Demand is inelastic if a specific percentage change in price results in a smaller percentage change in quantity demanded (E<1). c. Demand is unit elastic if the percentage changes in price and quantity demanded are equal (E=1). d. Demand is perfectly inelastic if a price change causes absolutely no change in quantity demanded (E=0), as illustrated by a perfectly vertical demand curve. e. Demand is perfectly elastic if any increase in price causes the quantity demanded to fall to zero, or if any decrease in price causes the quantity demanded to increase from zero to as many as can be produced (E=infinity), as illustrated by a perfectly horizontal demand curve. D. Graphical Analysis 1. Illustrated graphically perfectly elastic, relatively elastic, unitary elastic, relatively inelastic, and perfectly inelastic demand curves (Figures 4.1 and 4.2).

3 2. Figure 4.3 in the textbook, explains that elasticity varies over a range of prices.

4 a. Demand is more elastic in upper left portion of curve (because price is higher and quantity smaller). b. Demand is more inelastic in lower right portion of curve (because price is lower and quantity larger). 3. It is impossible to judge elasticity of a single demand curve by its flatness or steepness, since demand elasticity can be measured as both elastic and inelastic at different points on the same demand curve. E. Consider This A Bit of a Stretch 1. The Ace bandage stretches a lot when force is applied (elastic). 2. The rubber tie-down (not to be confused with a rubber band) moves stretches little when force is applied (inelastic). F. The total revenue test is the easiest way to judge whether demand is elastic or inelastic. This test can be used in place of elasticity formula unless there is a need to determine the elasticity coefficient. Total revenue = price x quantity sold 1. Elastic demand and the total revenue test: Demand is elastic if a decrease in price results in a rise in total revenue, or if an increase in price results in a decline in total revenue. (Price and revenue move in opposite directions.) 2. Inelastic demand and the total revenue test: Demand is inelastic if a decrease in price results in a fall in total revenue, or an increase in price results in a rise in total revenue. (Price and revenue move in the same direction.) 3. Unit elasticity and the total revenue test: Demand has unit elasticity if total revenue does not change when the price changes. 3. The graphical representation of the relationship between total revenue and price elasticity is shown in Figure 4.2. (see above in addition to the following Figure 4.3) Figure 4.3b

5 4. Table 4.2 provides a summary of the rules and concepts related to elasticity of demand. G. Price elasticity of demand is determined by several factors. 1. Substitutability: Generally, the more substitutes for the product, the more elastic the demand. 2. The proportion of price relative to income: Generally, the larger the expenditure relative to one s budget, the more elastic the demand, because buyers notice the change in price more. 3. Whether the product is a luxury or a necessity: Generally, the less necessary the item, the more elastic the demand. 4. The amount of time involved: Generally, the longer the time a customer has available to respond to price changes, the more elastic the demand becomes. H. Table 4.3 presents some real-world price elasticities. Use the determinants discussed to see if the actual elasticities are equivalent to what one would predict. I. Practical applications of the price elasticity of demand 1. Inelastic demand for agricultural products helps to explain why bumper crops depress prices and total revenues for farmers. 2. Governments look at elasticity of demand when levying excise taxes. Excise taxes on products with inelastic demand will raise the most revenue because they have the least impact on the quantity demanded.

6 3. Demand for cocaine is highly inelastic and presents problems for law enforcement. Stricter enforcement reduces supply, raises prices and revenues for sellers, and provides more incentives for sellers to remain in business. Crime may also increase as buyers have to find more money to buy their drugs. 4. Opponents of legalization think that occasional users or dabblers have a more elastic demand and would increase their use at lower, legal prices. Removal of the legal prohibitions might make drug use more socially acceptable and shift demand to the right. III. Price Elasticity of Supply A. The concept of price elasticity also applies to supply. The elasticity formula is the same as that for demand, but we must substitute the word supplied for the word demanded everywhere in the formula. Es = percentage change in quantity supplied / percentage change in price As with price elasticity of demand, the midpoint formula is more accurate. B. The ease of shifting resources between alternative uses is very important in price elasticity of supply, because it will determine how much flexibility a producer has to adjust the output to a change in the price. The degree of flexibility, and therefore the time period, will be different in different industries (Figure 4.4). 1. The market period is so short that elasticity of supply is inelastic; it could be almost perfectly inelastic or vertical, as in Figure 4.4a. In this situation, it is virtually impossible for producers to adjust their resources and change the quantity supplied in such a short time. (Think of adjustments on a farm once the crop has been planted.) 2. The short-run supply elasticity is more elastic than the market period and will depend on the ability of producers to respond to price change, as in Figure 4.4b. Industrial producers cannot change the plant size, but are able to make some output changes by having workers work overtime or by bringing on an extra shift.

7 3. The long-run supply elasticity is the most elastic, because more adjustments can be made over time and quantity can be changed more relative to a small change in price, as in Figure 4.4c. The producer has time to build a new plant and new firms have time to enter the industry. C. Applications of the Price Elasticity of Supply 1. Antiques and other non-reproducible products are inelastic in supply; sometimes the supply is perfectly inelastic. This makes their price highly susceptible to fluctuations in demand. 2. Gold prices are volatile because the supply of gold is highly inelastic, and unstable demand resulting from speculation causes prices to fluctuate significantly. IV. Cross Elasticity and Income Elasticity of Demand A. Cross elasticity of demand refers to the effect of a change in a product s price on the quantity demanded for another product. Numerically, the formula is shown for products X and Y. Exy = percentage change in quantity of X / percentage change in price of Y 1. If cross elasticity is positive, then X and Y are substitutes (an increase in the price of product Y causes consumers to increase demand for product X).

8 2. If cross elasticity is negative, then X and Y are complements (an increase in the price of product Y makes it more expensive to use product X, so consumers buy less of product X). 3. If cross elasticity is zero, then X and Y are unrelated, independent products. B. Income elasticity of demand refers to the change in quantity demanded that results from a change in consumer incomes. Ei = percentage change in quantity demanded / percentage change in income 1. A positive income elasticity indicates a normal or superior good. 2. A negative income elasticity indicates an inferior good. 3. Those industries that are income elastic will expand at a higher rate as the economy grows. C. Table 4.4 provides a summary of the values and descriptions related to cross and income elasticity of demand. V. LAST WORD: Elasticity and Pricing Power: Why Different Consumers Pay Different Prices A. Sellers often charge different prices for goods based on differences in price elasticity of demand. B. The ability to charge different prices depends on market power; that is, some ability to control price (unlike the competitive model where all buyers and sellers exchange at exactly the same price). C. Customers are grouped according to elasticities. Business travelers have more inelastic demand for air travel, and thus can be charged a higher price than the more price elastic tourist. The low budgets of children make their demand more price elastic, explaining why they receive discounts for movies or sporting events. In a like manner, colleges and universities recognize that income differences cause students to have different elasticities of demand for higher education, and schools attempt to discount prices (through financial aid) based on price sensitivity. D. The above are examples of price discrimination, a topic covered in more detail in Chapter 10.

### 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

### 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

### 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

### Formula: 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~

### 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

### 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

### 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

### 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

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

### 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

### 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

### 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

### 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

### 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

### 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

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

### 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

### 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

### 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.

### !"#\$#%&"'()#*(+,'&\$-''(.#/-'((

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

### EQ: What is Income Elasticity of Demand?

EQ: What is Income Elasticity of Demand? Changes in Consumer Income shift the demand curve: Normal Goods goods that are more desirable to consumers; when people have more money, they buy more normal goods

### 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

### AP Microeconomics: Test 2 Study Guide

AP Microeconomics: Test 2 Study Guide Mr. Warkentin nwarkentin@wyomingseminary.org 203 Sprague Hall 2017-2018 Academic Year Directions: The purpose of this sheet is to quickly capture the topics and skills

### 1. Explain 2. Describe 3. Create 4. Interpret

Law of Demand Section:- B Objectives 1. Explain the law of demand. 2. Describe how the substitution effect and the income effect influence decisions. 3. Create a demand schedule for an individual and a

### 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

### 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

### Chapter 4 Review: Demand. CHAPTER 4 Graphic Organizer

Chapter 4 Review: Demand CHAPTER 4 Graphic Organizer CHAPTER 4, SECTION 1 Key Concepts What Is Demand? A market is a place where people buy and sell things. A market has two sides. There is a buying side

### Chapter 4 DEMAND. Essential Question: How do we decide what to buy?

Chapter 4: Demand Section 1 Chapter 4 DEMAND Essential Question: How do we decide what to buy? Key Terms demand: the desire to own something and the ability to pay for it law of demand: consumers will

### 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

### 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:

### 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

### 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

### 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

### Economic 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.

### 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

### 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

### 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

### ECO 2301 Spring EXAM 2 Form 2 Friday, April 4 th Solutions

ECO 2301 Spring 2014 Sec 002 Klaus Becker EXAM 2 Form 2 Friday, April 4 th Solutions 1. The equilibrium price and quantity of any good or service is established by: A. only suppliers. B. only demanders.

### Econ 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

### 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

### 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

### 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

### 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.

### Monopoly CHAPTER. Goals. Outcomes

CHAPTER 15 Monopoly Goals in this chapter you will Learn why some markets have only one seller Analyze how a monopoly determines the quantity to produce and the price to charge See how the monopoly s decisions

### Welcome to Day 4. Principles of Microeconomics

Principles of Microeconomics Welcome to Day 4 What we did last class: 1) Law of demand and law of supply. 2) What equilibrium is. 3) Importance of incentives. 4) List of things that moves demand. 5) How

### 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

### PRICING IN COMPETITIVE MARKETS

PRICING IN COMPETITIVE MARKETS Some markets, such as those for agricultural commodities and gasoline, seem to have just one price at any given time. All producers in the market charge the same or very

### The science that studies the choices of people trying to satisfy their wants in a world of scarcity. Tangible Intangible

economics Chapter 1 The science that studies the choices of people trying to satisfy their wants in a world of scarcity. economic system The way in which a society decides what goods to produce, how to

### 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

### CH 14. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Class: Date: CH 14 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. We define a monopoly as a market with a. one supplier and no barriers to entry. b. one

### ECO 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

### not to be republished NCERT Chapter 6 Non-competitive Markets 6.1 SIMPLE MONOPOLY IN THE COMMODITY MARKET

Chapter 6 We recall that perfect competition was theorised as a market structure where both consumers and firms were price takers. The behaviour of the firm in such circumstances was described in the Chapter

### 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

### 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

### 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

### 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

### EXAMINATION 2 VERSION A "Applications of Supply and Demand" October 12, 2016

William M. Boal Signature: Printed name: EXAMINATION 2 VERSION A "Applications of Supply and Demand" October 12, 2016 INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted,

### 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 Ten. Pricing: Understanding and Capturing Customer Value. i t s good and good for you 10-1

i t s good and good for you Chapter Ten Pricing: Understanding and Capturing Customer Value 10-1 Pricing: Understanding and Capturing Customer Value Topic Outline What Is a Price? Major Pricing Strategies

### Chapter 10: Monopoly

Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue

### 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

### MICROECONOMIC FOUNDATIONS OF COST-BENEFIT ANALYSIS. Townley, Chapter 4

MICROECONOMIC FOUNDATIONS OF COST-BENEFIT ANALYSIS Townley, Chapter 4 Review of Basic Microeconomics Slides cover the following topics from textbook: Input markets. Decision making on the margin. Pricing

### Chapter 4: Demand Section 3

Chapter 4: Demand Section 3 Objectives 1. Explain how to calculate elasticity of demand. 2. Identify factors that effect elasticity. 3. Explain how firms use elasticity and revenue to make decisions. Copyright

### ECONOMICS CHAPTER 4: ELASTICITY OF DEMAND Class: XII (ISC) Meaning of Elasticity of Demand

Meaning of Elasticity of Demand ECONOMICS CHAPTER 4: ELASTICITY OF DEMAND Class: XII (ISC) 2017-2018 The term elasticity of demand indicates responsiveness of quantity demanded due to change in any of

### 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.

### Microeconomics. 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.

### 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

### LECTURE NOTES ON MICROECONOMICS

LECTURE NOTES ON MICROECONOMICS ANALYZING MARKETS WITH BASIC CALCULUS William M. Boal Part 2: Consumers and demand Chapter 6: Market demand and elasticity Problems (6.1) [Price elasticity] Suppose a consumer

### 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

### 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

### EXAMINATION 2 VERSION B "Applications of Supply and Demand" October 12, 2016

William M. Boal Signature: Printed name: EXAMINATION 2 VERSION B "Applications of Supply and Demand" October 12, 2016 INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted,

### Chapter 1- Introduction

Chapter 1- Introduction A SIMPLE ECONOMY Central PROBLEMS OF AN ECONOMY: scarcity of resources problem of choice Every society has to decide on how to use its scarce resources. Production, exchange and

### 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

### 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

### 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

### 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

### The Foundations of Microeconomics

The Foundations of Microeconomics D I A N N A D A S I L V A - G L A S G O W D E P A R T M E N T O F E C O N O M I C S U N I V E R S I T Y O F G U Y A N A S E P T E M B E R 1 4, 2 0 1 7 Lecture 3... INTRODUCTION

### Opportunity Cost The next best alternative foregone when making a decision. If X>Y, choose X, otherwise EcMan is being irrational.

Econ 191 Part 1: Introduction to the Economic Approach Microeconomics how individual workers, consumers and firms act and interact in markets -an act is a choice (made under free will) -choice is subject

### 2000 AP Microeconomics Exam Answers

2000 AP Microeconomics Exam Answers 1. B Scarcity is the main economic problem!!! 2. D If the wages of farm workers and movie theater employee increase, the supply of popcorn and movies will decrease (shift

### Indicate whether the sentence or statement is True or False. Mark "A" if the statement is True or "B" if it is False.

2004 SLC Economics Page 1 Indicate whether the sentence or statement is True or False. Mark "A" if the statement is True or "B" if it is False. 1. The marginal social cost equals the marginal private cost

### Introduction. Managerial Problem. Solution Approach

Monopoly Introduction Managerial Problem Drug firms have patents that expire after 20 years and one expects drug prices to fall once generic drugs enter the market. However, as evidence shows, often prices

### 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

### 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

### SHORT QUESTIONS AND ANSWERS FOR ECO402

SHORT QUESTIONS AND ANSWERS FOR ECO402 Question: How does opportunity cost relate to problem of scarcity? Answer: The problem of scarcity exists because of limited production. Thus, each society must make

### Full file at

Chapter 1 There are no Questions in Chapter 1 1 Chapter 2 In-Chapter Questions 2A. Remember that the slope of the line is the coefficient of x. When that coefficient is positive, there is a direct relationship

### 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

### 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

### 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

### STANDARD XII (ISC) ECONOMICS Chapter 4: Elasticity of Demand

STANDARD XII (ISC) ECONOMICS Chapter 4: Elasticity of Demand Meaning of Elasticity of Demand The term elasticity indicates responsiveness of one variable to a change in another variable. For example, when

### 1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price

1. Demand: willingness to buy a good or service and the ability to pay for it; how much of an item an individual is willing to purchase at each price 2. Quantity demanded vs demand: quantity demanded is

### 2003/2004 SECOND EXAM 103BE/BX/BF Microeconomics, Closed part

1 2003/2004 SECOND EXAM 103BE/BX/BF Microeconomics, Closed part Note 1: Always read all the options before choosing one, and then select the best option. Sometimes the final option may read like all the

### Supply. Understanding Economics, Chapter 5

Supply Understanding Economics, Chapter 5 What is Supply? Chapter 5, Lesson 1 What is Supply?! Supply the amount of a product a producer or seller would be willing to offer for sale at all possible prices

### 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

### 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,

### 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

### NB: STUDENTS ARE REQUESTED IN THEIR OWN INTEREST TO WRITE LEGIBLY AND IN INK.

1 INFORMATION & INSTRUCTIONS: DURATION: THREE (3) HOURS TOTAL MARKS: 300 INTERNAL EXAMINER : PROFESSOR D. MAHADEA EXTERNAL EXAMINER: MR R. SIMSON NB: STUDENTS ARE REQUESTED IN THEIR OWN INTEREST TO WRITE