ECN 104 Lecture Notes - Lecture 3: Joule, Antivenom, Normal Good

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18 May 2016

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What is the meaning and importance of: price elasticity of demand, income elasticity of demand, price elasticity of supply. What factors influence the size of these various elasticity"s. How the cross-price elasticity of demand measures the responsiveness of demand for one good to changes in the price of another good. Elasticity measures how responsive one variable is to changes in another variable. Price elasticity of demand measures how responsive quantity is to changes in demand, along a demand curve. The price elasticity of demand is the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign) At a price of per vaccination, the quantity of vaccinations demanded is 10 million per year (point a). When price rises to per vaccination, the quantity demanded falls to 9. 9 million vaccinations per year (point b).

Related Questions

Match the following terms with their proper definitions.

Potential Matches:

1 : measures the responsiveness of the quantity supplied of a good to changes in the price of that good

2 : a formula that measures the responsiveness along a specific section (arc) of a supply or demand curve and measures the "average" price elasticity between two points on the curve.

3 : measures the responsiveness of the quantity supplied of a good to changes in the price of the related good

Answer

: Own-Price Elasticity of Supply

: Cross-Price Elasticity of Supply

: Arc Elasticity

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

a) What is the advantage of using the price elasticity rather than the slope of the demand curve or its inverse to measure the responsiveness in the quantity demanded of a commodity to a change in its price?

b) Why and how is the formula for arc price elasticity of demand different from the formula for point price elasticity of demand?

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ECN 104 Lecture Notes - Lecture 3: Joule, Antivenom, Normal Good

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