ECON 1B03 Lecture Notes - Lecture 4: Normal Good, Substitute Good, Haplogroup Q-M242

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21 Aug 2018

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Elasticity: measure how responsive qd or qs is to changes in p and other determinants. P changes, will qd change by a little or a lot. Knowing the elasticity allows them to know whether they should lower/raise their price, more profit ect. Firm wants max profit, wants to max revenue. It can tell a firm whether it should raise/ lower its price (assuming they set there own price. This is price of good x how many you sell at that price. Is a measure of how much the quantity demanded of a good responds to the change in price of that good. We are isolating the impact on qd by just looking at price changes. Computed: ep = % change in qd / % change in p. Our answer is called the coefficient of elasticity. The size of it will tell us how responsive demand is to change in price.

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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

A Steel Supply and Demand for the USA are given by Demand: P = 1200 - 100 (QD) and supply: P = 100 (QS) where QD = quantity demanded and QS = quantity supplied. Assume the selling price is $700 and the firm decreases the price of the product. Will the total revenue falls or increases. Why? Illustrate graphically the relationship between elasticity, price and total revenue by identifying the revenue maximization price and revenue maximization output?

greenwater-buffalo996

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.

ECON 1B03 Lecture Notes - Lecture 4: Normal Good, Substitute Good, Haplogroup Q-M242

ECON 1B03 Full Course Notes

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