ECON 1B03 Lecture Notes - Lecture 4: Hyperbola, Demand Curve, Ice Cream Cone

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21 May 2018

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Perfectly Elastic Demand: a change in Price leads to an infinitely great change in Qd

- Demand is extremely responsive to a price change

- Percentage change in Qd approaches infinity

- Ep = infinity

- Demand curve will be horizontal

- Example: there is no real-world example. A good with perfectly elastic demand would be one

with an infinite number of substitutes so that any change in price would create an infinite

change in demand

- At any price over P*= nobody will buy any

- At any price under P*= the demand will be infinitely huge

Unit Elastic: a change in Price leads to a proportionately equal change in Qd

- Percentage change in Price= Percentage change in Qd

- Ep = 1

- Demand curve will be non-linear. It will be a rectangular hyperbola. It has to be a non-linear

so that no matter where you are on the curve, Total Revenue will always be the same

maximum value

- Example: wine in the US

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Perfectly elastic demand: a change in price leads to an infinitely great change in qd. Demand is extremely responsive to a price change. A good with perfectly elastic demand would be one with an infinite number of substitutes so that any change in price would create an infinite change in demand. At any price over p*= nobody will buy any. At any price under p*= the demand will be infinitely huge. Unit elastic: a change in price leads to a proportionately equal change in qd. Percentage change in price= percentage change in qd. It has to be a non-linear so that no matter where you are on the curve, total revenue will always be the same maximum value. At any price and quantity combination the total revenue will be the same. If we are given percentage changes in price and the corresponding changes in qd, we use the formula.

Related Questions

A perfectly elastic demand implies that

a. buyers will not respond to any change in price.

b. any rise in price above that represented by the demand curve will result in no output demanded.

c. price and quantity demanded respond proportionally.

d. the price will rise by an infinite amount when there is a change in quantity demanded.

bluecaribou182

The demand curve for a good is very unlikely to be perfectly vertical because

A) scarcity and limited income restrict the ability of consumers to afford goods as they become very expensive.
B) as the price of a good rises to high enough levels, the incentive for other suppliers to invent new substitutes for the good increases.
C) consumers generally do not care about the price of the goods they consume.
D) both a and b are true.

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will

A) approach zero.
B) increase.
C) decrease.
D) remain the same since time does not affect the elasticity of market supply.

The price elasticity of demand for automobiles measures the responsiveness of

A) consumer purchases to a change in the price of automobiles.
B) consumer purchases to a change in the quality of automobiles.
C) supplier production levels to a change in the price of automobiles.
D) consumer purchases of automobiles to a change in their income.

Which of the following is true regarding the price elasticity of demand?

A) Demand is generally more elastic in the long run than in the short run.
B) Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices).
C) a flatter demand curve (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope.
D) All of the above are true.

5. (Answer ONE of the Following Question)

Economists maintain that the price of a product does not affect demand. How can this be true?
National defence is considered a public good because there appear to be no limits to the nonrivalry-in-consumption characteristic, and exclusion of nonpayers is impossible. Are there any other goods that so perfectly meet both public goods criteria?
Congressman Local stuff always votes for a balanced budget amendment to the U.S. Constitution. He also always votes for spending bills supported by the leadership of his political party. Is this rational?

carminecheetah752

1. Price elasticity of demand is calculated as:

a. the percentage change in quantity demanded divided by the percentage change in price
b. the percentage change in price divided by the percentage change in quantity demanded
c. the absolute change in quantity demanded divided by the absolute change in price.
d. the absolute change in price divided by the absolute change in quantity demanded

2. The price elasticity of demand:

a. is of no use to producers
b. tells producers what will happen to total profit if they change product price
c. tells producers what will happen to quantity supplied if they change product priced.
d. tells producers what will happen to total revenue if they change the product price

3. Along a linear demand curve,

a. both the slope and price elasticity are constant
b. the price elasticity is constant, but the slope varies
c. total revenues are constant
d. the slope is constant, but the price elasticity varies

4. Demand is more elastic:

a. in the short run than in the long run
b. for necessities than for luxuries
c. for food than for hamburgers
d. for goods with many substitutes than for goods with only a few

5. Demand for a necessity, such as food, is:

a. both income and price inelastic
b. income inelastic and price elastic
c. income elastic and price inelastic
d. both income and price elastic

6. The reason economists assume that firms try to maximize economic profit is:

a. over time, firms that don't earn profits will have difficulty securing financing to survive
b. firms in the real world always maximize profit
c. profit is easier to calculate than revenues
d. if a firm fails to earn a profit in its first year, it will go out of business

7. Which of the following is a short-run adjustment?

a. Toyota builds an automobile plant in Kentucky.
b. Faced with increasing enrollment, a private college builds a new school of Business building.
c. Because of staggering losses, three insurance companies exit the industry.
d. People's Bank hires two new tellers to meet the increased demand for customer services.

8. At the point where diminishing marginal returns set in, the slope of the total product curve is:

a. positive and increasing
b. positive and decreasing
c. negative and increasing
d. negative and decreasing

9. Which of the following correctly describes the relationship between the marginal cost and average variable cost curves?:

a. MC is everywhere above AVC
b. AVC is everywhere above MC
c. MC crosses AVC at AVC's minimum point
d. MC crosses AVC at MC's minimum point

10. The shape of the long-run average cost curve reflects
a. market demand
b. economies and diseconomies of scale
c. increasing and diminishing marginal returns
d. the productivity of fixed inputs

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ECON 1B03 Lecture Notes - Lecture 4: Hyperbola, Demand Curve, Ice Cream Cone

ECON 1B03 Full Course Notes

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