ECON-2110 Lecture Notes - Lecture 9: Ceteris Paribus, Price Elasticity Of Demand, Demand Curve

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mauvecricket479

19 Oct 2015

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Own-price elasticity: price elasticity a measure of responsiveness of quantity to changes in price, why do we care, it"s going to help us answer questions such as . Each measures how quickly quantity changes as we move along the curve. Or rise (when price goes up): ex: two different demand curves for the same good, elastic demand relatively large quantity change when prices changes. The closer the substitutes the smaller the price increase needed to inspire consumers to switch. Ex: suppose the price of gas rises and you drive to campus. What can you do to lower your consumption of gas: short-run, bus, carpool, bus. Long-run: buy a moped, buy a bike, buy a prius (gas efficient car, even-longer period, move closer to campus. The longer the period the greater the number of action a consumer can take (i. e. , certain actions become less costly as time passes)

Related Questions

interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

quantity effect

total revenue

unitary elastic demand

1. __________________ A measure of consumersâ sensitivity or responsiveness to changes in the price of a good or service.

2. ___________________ When the percentage change in price (in absolute value) is more than the percentage change in quantity demanded (in absolute value).

3. ___________________ When the percentage change in quantity demanded (in absolute value) is more than the percentage change in price (in absolute value).

4. ___________________ When the percentage change in quantity demanded (in absolute value) is just equal to the percentage change in price (in absolute value).

5. ___________________ Total amount paid to a producer for a good or service P * Q.

6. ___________________ The effect on total revenue of a change in price, holding quantity constant.

7. ___________________ The effect on total revenue of a change in quantity, holding price constant.

8. ___________________ An elasticity calculated over an interval of a demand curve or demand schedule.

9. ___________________ Elasticity at a specific price or point on a demand curve.

10. ___________________ A measure of how responsive quantity demanded is to a change in income, all other things constant.

11. ___________________ A measure showing how responsive the quantity demanded of one good is to changes in the price of another good, other factors constant.

12. ___________________ The additional revenue received by producing and selling one more unit of output.

13. ___________________ Units of output that could have been sold at a higher price had the firm not lowered its price to sell additional (marginal) units.

coffeehornet269

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.

Address the following:

Price elasticity of demand refers to the percentage change in demand resulting from a percentage change in price.

Please review the definition of relative inelasticity and relative elasticity. These terms refer to how much demand changes based on a change in price.

1) Choose any three products and classify and describe their price elasticity of demand; (relatively inelastic, relatively elastic, perfectly elastic, perfectly inelastic, or unitary elastic; your three product should illustrate different elasticities; ie: do not chose two relatively inelastic products)

2) Discuss what happens to the demand when the price changes for each of your items, specifically how much does demand change when the price changes?

3) Explain why demand changes the way it does for each of your three products

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ECON-2110 Lecture Notes - Lecture 9: Ceteris Paribus, Price Elasticity Of Demand, Demand Curve

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