CAS EC 101 Lecture Notes - Normal Good

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lavenderbeaver326

16 Aug 2014

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Midpoint formula: if the absolute value of the price elasticity demand is: =1: rules of thumb for price elasticity of demand, availability of close substitutes. Demand for a good with close substitutes is more elastic. The longer the period of time, the more elastic is demand: passage of time, luxuries vs necessities, definition of the market. Demand for luxuries is more elastic than that for necessities. The broader the definition of a good, the less elastic the demand: share of a good in a consumer"s budget, other elasticities, cross price elasticity of demand. Measures the response of demand for one good to the changes in price of another good. Cross-price elasticity of demand= % in qd good 1/ % in price good 2. For substitutes, cross price elasticity is >0 (e. g. an increase in the price of beef causes an increase in demand for chicken). For complements: cross price elasticity <0: income elasticity of demand:

Related Questions

Which of the following statements about price elasticity of demand is false?

a) The value of price elasticity of demand is the reciprocal of the value of the demand curve's slope

b) If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic

c) The value of price elasticity of demand along a downward sloping demand curve is always negative

d) A linear downward sloping demand curve has a varying price elasticity coefficient

crimsonreindeer712

Which of the following statements about price elasticity of demand is false?
A) The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.
B) If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic.
C) The value of the price elasticity of demand along a downward-sloping demand curve is always negative.
D) The elasticity is different on every point of a linear downward-sloping demand.

crimsonreindeer712

Discussion #1

The law of demand states that a fall in the price of a good raises the quantity demanded, and the increase in price leads to a decrease in quantity demanded. The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price, and the percentage change in quantity demanded is greater than the percentage change in price. Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price, which indicates that the percentage in price is greater than the percentage in quantity demanded.

However, the extent of responsiveness of quantity demanded to a change in price depends on the nature of a particular good or service in the market. The price elasticity of demand partly depends on the availability of close substitutes. When a large number of substitutes are available, consumers respond to a higher price of a good by buying more of the substitute goods and less of the relatively more expensive good. In addition, goods or services that are considered necessities tend to have less elastic (more inelastic) demand, whereas goods or services that are considered luxuries have more elastic (less inelastic) demands.

Explain why the demand for the good or service provided by the organization you work for is elastic or inelastic. How does this influence pricing decisions?
Provide examples on how the availability of close substitutes affects price elasticity of demand.
Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

Please answer ALL bulletins and place the answers under the correct bulletin.

CAS EC 101 Lecture Notes - Normal Good

CAS EC 101 Full Course Notes

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