ECON 1B03 Lecture 1: econ note 1

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9 Jul 2020

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Include the tax when calculating reduced ps and cs. There is no example of perfectly elastic demand. Unit elastic- change in p equals change in qd, ep is 1. Line is a curve because total revenue has to be same in all cases. Ep= % change in qd/ % change in p. % change = (p2 - p1) / p1. Point elasticity- impact of marginal changes in price on quantity demanded. Ep= change in q/ change in p * p/q. Change in q/ change in p is just the slope when q=f(p)

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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

interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

quantity effect

total revenue

unitary elastic demand

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

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.)

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ECON 1B03 Lecture 1: econ note 1

ECON 1B03 Full Course Notes

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