ECON-1006EL Lecture Notes - Lecture 4: Normal Good, Demand Curve, Substitute Good

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emeraldchinchilla301

16 Oct 2015

School

Laurentian

Department

Economics / Science Èconomique

Course

ECON-1006EL

Professor

All

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Example: start price, end price, price change, 16. 7% price change (2/12) from 12 >14, 14. 2% price change (2/14) from 14 >12. Will revenue go up or down if we raise the price . Is demand a ow or a stock concept? : a: ow. Normal good- one you buy more of when the price goes down (i. e most regular items) Inferior goods- one you buy less of when the price goes down (i. e day old bread) Use average to calculate the percentage change. Own price arc elasticity of demand= . = 0 than vertical demand curve, elasticity= 0, perfectly inelastic. = perfectly elastic, change in price unde ned, horizontal line. If curve is up and down, elasticity is zero. Uniform elasticity happens at a uniformly decelerating slow. Point a: tr= total revenue, tr= price x quantity, =10 x 100, =$ 1000. Point b: tr= p x q, = 9 x 101, = , total revenue price.

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PROBLEM SET ONE -2 - PRICE-ELASTICITY OF DEMAND

	P₁	P₂	Q_D1	Q_D2	I	II	III	IV	V
1	1	2	10	5
2	5	3	40	90
3	12	20	200	200
4	3	2	9	9
5	0.40	1.40	30	15
6	1.2	4.0	20	15
7	7.5	4.6	40	30
8	5	5.000â¦01	1x10⁶	0
9	5	4.9999â¦.	10	1x10⁹
10	6	12	12	6
11	18	36	360	180
12	7	15	24	16
13	7	16	78	78
14	25	65	150	100
15	65	91	1300	780
16	4	5	21	11
17	8	4	30	54
18	140	275	625	495
19	78	91	780	780
20	91	78	780	780

Column I - determine the Price-Elasticity of Demand Coefficient. Find material in Chapter 6 and the Powerpoint of Elasticity Chap 004 19e.ppt

change in quantity demanded change in price

E_D = ---------------------------------------- â ----------------------------

sum of quantities demanded / 2 sum of prices / 2

The data in the first four columns represent price (P) and quantity demanded (Qd) in time 1 (before change in price) and time 2 (after change in price). Note that results should be expressed in absolute terms (see paragraph Elimination of Minus Sign). For example, -1 should be expressed as â1â.

Column II â Based on topic concerning Interpretations of E_D, indicate which applies based on how the quantity demanded changed subsequent to a change in price (elastic, inelastic, etc.)

Column III - you need to determine if the good in question would be considered a necessity, a luxury or neither.

Column IV â Indicate, in monetary terms, how much is the change in total revenue or total expenditure (TR = P X Q_D), from the first price level to the second.

Column V - the direction of the change, also in monetary terms, that is, increasing or decreasing, and by how much? (show a + sign for increasing and a â sign for decreasing).

Note: for any monetary result please include the applicable currency symbol ($, â¬, etc.)

salmoneagle868

1) All else being equal, the more important an item is in buyers' budgets, the more elastic is the demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

7) Among the reasons that farmers' incomes are unstable is _____
A) The supply curve for food can shift dramatically rightward or leftward from year to year.
B) The demand for food is elastic
C) The income elasticity for food is very high
D) All of these
E) None of these

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

9) As we move leftward along a straight-line demand curve, the (absolute value of the) price elasticity of demand ____
A) Grows smaller
B) Remains constant at zero
C) Remains constant at a value of one
D) Remains constant and equal to the (absolute value of the) slope of the demand curve
E) Grows larger

10) If a good is normal, we know that______
A) income elasticity is positive
B) The good's price elasticity of demand is positive
C) Demand for the good is elastic
D) Demand for the good is inelastic
E) Income elasticity is negative

11) When the price of a good rise by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand for this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

12) If the price elasticity of demand for a good is negative, we know that the good _____.
A) Obey's the law of demand
B) Is normal
C) Is inferior
D) Violates the law of demand
E) is inelastically demanded

13) Which of the following would you expect to have the greatest (in absolute value) price elasticity of demand?
A) Clothing
B) Pants
C) Blue jeans
D) Levi's Blue jeans
E) All of these answers would have approximately the same price elasticity of demand.

14) The price elasticity of demand for a good is -2.0 When the price of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the goodwill increase
C) Total expenditure on this goodwill fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

turquoiseporpoise766

1) All else being equal, the more imprtant an item is in buyers' budgets, the more elastic is demand for the good. (TRUE/FALSE)

2) If the demand curve for a good is a steep, straight line, then the demand for the good is inelastic at every point along that demand curve. (TRUE/FALSE)

3)If the demand for illegal drugs is inelastic, then government efforts to reduce the supply of illegal drugs are likely to cause an increase in total expenditure on them. (TRUE/FALSE)

4) If the demand for mass transit in a city is inelastic, then raising fares will increase mass transit revenue. (TRUE/FALSE)

5)The cross-price elasticity of demand between Levi's blue jeans and Wrangler's blue jeans is most likely positive (TRUE/FALSE)

6) Perfectly inelastic demand occurs when the demand curve is horizontal. (TRUE/FALSE)

8) If the (absolute value of) the price elasticity of demand for a good is greater than one, then demand for the good is _____
A) Elastic
B) Inelastic
C) Inferior
D) Normal
E) Paranormal

11) When the price of a good rises by 10%, and nothing else changes, the quantity of the good demanded falls by 5%. The price elasticity of demand fort this good is_____
A) -0.5%
B) -5%
C) -5.0%
D) -2.0%
E) 2.0%

14) The price elasticity of demand for a good is -2.0 When the proce of this good rises, what occurs?
A) Quantity demanded will rise as well
B) The income of those who buy the good will increase
C) Total expenditure on this good will fall.
D) All of these
E) All of these answers would have approximately the same price elasticity of demand.

carminewildebeest5

ECON-1006EL Lecture Notes - Lecture 4: Normal Good, Demand Curve, Substitute Good

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