ECON 1B03 Lecture Notes - Lecture 5: Chocolate Cake, Demand Curve, Normal Good

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ECON 1B03 Lecture Notes - Lecture 5: Chocolate Cake, Demand Curve, Normal Good

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Document Summary

If the quantity demanded changes significantly in response to a change in price, we say that the demand is elastic. If it does not change significantly, the demand is inelastic: elasticity depends on the change in quantity demanded and the change in price. We can determine how elastic the demand of a good is by calculating it"s coefficient of price elasticity of demand, or ep: (cid:3043)= (cid:3017)(cid:3032)(cid:3045)(cid:3030)(cid:3032)(cid:3041)(cid:3047) (cid:3004) (cid:3028)(cid:3041)(cid:3034)(cid:3032) (cid:3041) (cid:3018)(cid:3048)(cid:3028)(cid:3041)(cid:3047)(cid:3047) (cid:3005)(cid:3032)(cid:3040)(cid:3028)(cid:3041)(cid:3031)(cid:3032)(cid:3031) (cid:3017)(cid:3032)(cid:3045)(cid:3030)(cid:3032)(cid:3041)(cid:3047) (cid:3030) (cid:3028)(cid:3041)(cid:3034)(cid:3032) (cid:3041) (cid:3017)(cid:3045)(cid:3030)(cid:3032) If ep is greater than 1, demand is elastic, and the demand curve is very flat. If ep is infinite, demand is perfectly elastic, and the demand curve horizontal. This case is rare, but might include the market for wheat- if the price changes at all, everyone will by wheat elsewhere. If ep is less than 1, demand is inelastic, and the demand curve is very steep. If ep is 0, demand is perfectly inelastic, and the demand curve is vertical.

Related Questions

1. The concept of price elasticity of demand measures:

a. the slope of the demand curve.

b. the number of buyers in a market.

c. the extent to which the demand curve shifts as the result of a price decline.

d. the sensitiveness of quantities demanded to price changes.

2. When the percentage change in price is less than the resulting percentage change in quantity demanded:

a. demand is elastic.

b. demand is inelastic.

c. demand is unit elastic.

d. none of the above.

3. The elasticity of demand:

a. will be the same at each price-quantity combination on a stable demand curve.

b. tends to be elastic in high-price ranges and inelastic in low-price ranges.

c. tends to be inelastic in high-price ranges and elastic in low-price ranges.

d. is infinitely large for a perfectly inelastic demand curve.

4. Suppose that as the price of Y falls from $2.00 to $1.80 the quantity of Y demanded increases from 110 to 121. It can be concluded that the price elasticity of demand is: _______.

5. Total revenue rises as the price of a good increases if price elasticity of demand is:

a. unitary elastic

b. perfectly inelastic.

6. The demand for such products as salt, bread, and electricity tend to be:

a. relatively price elastic.

b. relatively price inelastic.

c. of unit price elasticity.

d. perfectly price elastic.

coffeeelephant81

If the percentage change in quantity demanded is less than the percentage change in price, we would say that over this range, demand is:

elastic.
unit elastic.
inelastic.
perfectly elastic.

amethystsquirrel634

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 5: Chocolate Cake, Demand Curve, Normal Good

ECON 1B03 Lecture Notes - Lecture 4: Microsoft Powerpoint, Opportunity Cost, Comparative Advantage

ECON 1B03 Lecture Notes - Lecture 5: Chocolate Cake, Demand Curve, Normal Good

ECON 1B03 Lecture Notes - Lecture 7: Average Variable Cost, Marginal Revenue, Marginal Cost

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