🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000CA670,000

ECON 1B03 Lecture Notes - Lecture 5: Demand Response, Inferior Good, Normal Good

73 views4 pages
School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Aleksandra Gajic

For unlimited access to Class Notes, a Class+ subscription is required.

Shanghaibalcony1234 and 37744 others unlocked
ECON 1B03 Full Course Notes
46
ECON 1B03 Full Course Notes
Verified Note
46 documents

Document Summary

Does not respond to change in price - demand response to price is inelastic. These people should raise their price a little because demand won t change and ur revenue will go up. Lower price a little at the end of day if your goods demand is elastic in response to prices , you will get a whole bunch of new customers. Depends on whether good is normal or inferior. Inferior goods = income goes up demand goes down vice versa. Normal goods = income goes down , demand goes down vice versa. Compliments = as price goes up, demand goes down for both of them. Elasticity of price = ep = absoulte value since we know its gonna be a negative for less than -1. If coefficent is fraction , absolute value is in between 0 and 1 , (a fraction) then it is not elastic. Slight price change changes value of demand dramataically.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ECON 1B03
Final Exam
Study Guide
ECON 1B03 Midterm: Chapters Review Part 2
ivoryarmadillo383
ECON 1B03 Lecture Notes - Lecture 5: Economic Equilibrium, Demand Curve, Inferior Good
pucecod490
ECON 1B03 Lecture Notes - Lecture 5: Demand Curve, Inverse Relation, Inferior Good
whiteswan47

Related Questions

Question 1

  1. If economic profits are zero

    accounting profits is less than the cost of capital.

    accounting profit is just covering the cost of capital.

    the cost of capital is negative.

    the entrepreneur should go to his/her next best alternative.

3 points

Question 2

  1. Markets provide

    information.

    prices.

    incentives.

    all of these choices.

3 points

Question 3

  1. The entrepreneur is always searching for

    positive profit.

    normal profit.

    accounting profit.

    economic profit.

3 points

Question 4

  1. Social regulations can create

    a more competitive market place.

    network externalities.

    a lower HHI.

    barriers to entry.

3 points

Question 5

  1. According to economic theory, profits are maximized where

    total revenue equals total cost.

    marginal revenue equals marginal cost.

    price and average cost are equal.

    where marginal product and average cost are equal.

3 points

Question 6

  1. Brand names help

    create commodities.

    maintain market power.

    create competition.

    keep economic profits at zero.

3 points

Question 7

  1. Entry of new firms causes

    accounting profits to go to zero.

    market share to grown.

    economic profits to go to zero.

    total revenue to be maximized.

3 points

Question 8

  1. Fixed costs

    do not vary with output

    vary with output

    do not vary with price

    vary with price

3 points

Question 9

  1. Variable costs

    do not vary with price.

    do not vary with output.

    vary with price.

    vary with output.

3 points

Question 10

  1. Value maximization means

    that managers make decision so as to increase the long-run market value of the financial claims on the firm.

    that a firm should make products that have the highest price.

    that managers make decision so as to increase the short-run market value of the financial claims on the firm.

    all of these choices.

3 points

Question 11

  1. A manager can determine if her product is viewed as a normal good or an inferior good by considering

    price elasticity.

    cross elasticity.

    income elasticity.

    advertising elasticity.

3 points

Question 12

  1. If demand is perfectly elastic,

    the smallest increase in price will cause quantity demanded to fall to zero.

    the smallest increase in price will cause demand to fall to zero.

    the smallest increase in price will cause quantity demanded to fall.

    the smallest increase in price will cause demand to fall.

3 points

Question 13

  1. If demand is perfectly elastic, then

    demand and price are inversely related.

    quantity demanded and price are inversely related.

    the demand curve is a vertical line.

    the demand curve is a horizontal line.

3 points

Question 14

  1. If price elasticity is 3.25 then

    for every one percent change in price, there will be a 3.25 percent change in quantity demanded.

    for every one percent change in price, there will be a 3.25 percent change in demand.

    for every one percent change in price, there will be a 32.5 percent change in quantity demanded.

    for every one percent change in price, there will be a .0325 percent change in quantity demanded.

3 points

Question 15

  1. If price elasticity is 3.25, then demand is

    inelastic.

    elastic.

    unitary.

    negative.

1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.

a) Construct a table showing the alternative combinations of the two products that are available.

b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?

c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?

2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,

a) what is its total revenue?

b) what is its total cost?

c) what is its profit or loss?

d) will it continue to produce screwdrivers?

e) If this firm’s situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?

3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?

a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity

b)Demand decreases and supply is constant.

c)Supply increases and demand is constant.

d)Demand increases and supply increases.

e)Demand decreases and supply decreases.

4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zeke’s income and the cost of other types of entertainment—in particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.

a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?

b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?

PRICE D1 D2 D3
50 10 5 12
40 15 10 25
30 25 15 40

Income 60,000 60,000 80,000

Cost of revenue 10 12 12

5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.

P Qd(D1) Qd(D2) Qd(d3)
20 0 0 1
19 0 1 2
17 0 2 3
16 0 3 4
15 1 4 5
14 2 5 6
13 3 6 7
12 4 7 8
11 5 8 9
10 6 9 10
(1) If a demand curve shifts to the left, then:
a) price would go up and quantity would go down
b) price would go down and quantity would go up
c) a lower price and quantity would result
d) a higher price and quantity would result

(2) Demand and supply curves are drawn assuming ceterisparibus.This means that:
a) economists ignore all assumptions
b) economists don't watch for the fallacy of false cause
c) changes will be proportional
d) all other things besides price and quantity are unchanged

(3) If steak and potatoes are complements, when the price ofsteakgoes up, the demand curve for potatoes:
a) shifts to the right
b) shifts to the left
c) stays the same
d) shifts to the right and then moves back

(4) Given that chicken and beef are substitute goods, if thepriceof chicken decreases substantially, there would be:
a) an increase in the demand for beef
b) a decrease in the demand for beef
c) a decrease in the quantity for beef demanded
d) no change in the demand for beef

(5) Every day for the past two years you've had ham and cheese onawhole wheat bagel for lunch at Bungalow Bob's BagelBoutique.However, the price of whole wheat bagels has risen by 10cents sotoday you decide to have ham and cheese on rye bagel. Inthis case,whole wheat and rye bagels are best considered:

a) superior goods
b) normal goods
c) substitute goods
d) complementary goods

(6) For most goods, purchases tend to rise with increases inbuyers'incomes and to fall with decreases in buyers' incomes. Suchgoodsare known as:

a) inferior goods
b) direct goods
c) normal goods
d) luxury goods

(7) Economists know that a particular good can be classified asaninferior good if a(n)______ increase in buyers' incomecausesa(n)_____

a) increase; increase in demand
b) increase; increase in quantity demanded
c) increase; decrease in demand
d) decrease; decrease in demand

(8) An increase in the demand for medical services caused byanincrease in the number of people 65 is most likely attributabletowhich demand shifter?

a) income
b) consumer preferences
c) prices of other goods
d) demographic characteristics

(9) Which of the following would shift the demand curve fornewtextbooks to the right?

a) a decrease in the price of paper
b) a fall in the price of used textbooks
c) an increase in college enrollments
d) a fall in the price of new textbooks

(10) How a supply curve is sloped and located depends on:

a) technology
b) resources prices
c) the number of producers or sellers
d) all of the above

(11) A decrease in supply means:

a) a shift to the left of the entire supply curve
b) moving downward (to the left) along the supply curve withlowerprices
c) less will be demanded at every price
d) more will be supplied at every price