ECON 1010 Chapter Notes - Chapter 4: Normal Good, Luxury Goods, Inferior Good

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raspberryturtle904

5 Mar 2018

School

University of Manitoba

Department

Economics

Course

ECON 1010

Professor

Mehmet U.Oguzoglu

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ECON 1010 Full Course Notes

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Price elasticity of demand: how demand changes in respond to the change of price. Price increase, demand decrease --> a negative elasticity. The more the number of substitute, the more elastic it will be. The video said so but it is really confusing. Definition: measurement of the effect of a change in consumer income, on the quantity demand. Positive income elasticity: increasing income --> increasing demand. Negative income elasticity: increasing income --> decrease demand. Definition: measurement of the effect of a change in the price of one good, on the consumption of another good. Definition: measurement of the effect of a change in price, on the quantity supplied of a good or service. Time available for production: more time to produce, more elasticity. Elasticity of supply tends to increase over time. Market period: a time period so short that the output and the number of firms are fixed.

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

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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

1) The fewer the number substitutes there are for a product.

(a) the less the price elastic the demand for the product is.

(b) the more price elastic the demand for the product is.

(d) the smaller the income elasticity for the product.

2) When people have more time to respond to price changes, demand becomes

(a) more elastic

(b) less elastic

(d) neither more nor less elastic because time has no effect on demand.

3) If the owner of an ice cream store charges a $ 1.20 for an ice cream cone his total revenue is $540 a day. If he lowers the price to $ 1.00 his total revenue is $ 500 a day. The demand for the ice cream is

(a) elastic

(b) inelastic

(d) neither more nor less elastic because time has no effect on demand.

4. The Bill Branch Tool Company wants to increase the quantity of tools it sells by 10%. If the price elasticity of demand is -2.5 the company must

(a) decrease price by 4.0%

(b) increase price by 4.0%

(d) increase price by .025%

1. Suppose there is an increase in the supply of a product. Rank the following own price elasticity of demand classifications according to which has BOTH the largest effect on price and the smallest effect on quantity: perfectly (infinitely) elastic, elastic, inelastic, unit elastic, or perfectly (infinitely) inelastic. Diagrams may be useful.

2. If the own price elasticity of demand for beer is approximately unity, what would be the direction of the change (increase, decrease, no change) in total revenue, total cost and profits of an increase in price.

The change in the direction of total revenue is:_________________________________

The change in the direction of total cost is:_________________________________

The change in the direction of profits is:_________________________________

3. 11. The own price elasticity of demand for cigarettes is 0.5. Suppose all of the

cigarette manufacturers colluded to raise prices by 20%. Predict the direction of the change (increase, decrease, no change) in total revenue, total costs and profits of all companies combined if price were to increase.

The change in the direction of total revenue is:_________________________________

The change in the direction of total cost is:_________________________________

The change in the direction of profits is:_________________________________

4. Christmas toys at Thanksgiving time, Christmas toys on Christmas Eve

The product that is more elastic is ________________________

The own price elasticity of demand determinant(s) involved is/are_________________________________________________________________

ECON 1010 Chapter Notes - Chapter 4: Normal Good, Luxury Goods, Inferior Good

ECON 1010 Full Course Notes

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