ECO101H1 Lecture Notes - Lecture 3: Midpoint Method, Demand Curve, Sunscreen

29 views8 pages

greyfox298

7 Dec 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

elizabethkandelaki and 40134 others unlocked

ECO101H1 Full Course Notes

Verified Note

98 documents

Document Summary

You design and create tailor-made dresses for women. You charge per dress, and currently sell 12 dresses per month. Your costs are rising (including the opportunity cost of your time), so you consider raising the price to . The law of demand says you won"t sell as many dresses if you raise your price. Measures hw much one variable responded to changes in another variable. One type of elasticity measures how much demand for your dresses will fall if you raise the price. Elasticity: a numerical measure of the responsiveness of qd or qs to one of it determinants. Percentage change in p price elasticity of demand measures how much qd responds to a change in p. Example: p rises by 10%, q falls by 15% Note: along a d curve, p and q move in opposite directions, which would make the price elasticity negative. We will drop the minus sign and report the absolute value.

Related Questions

Question: Your Boss wants to increase total revenue by 15%. Your staff economist has estimated that the price elasticity is 0.8. Should the company raise or lower its prices and by how much to affect a 15% revenue increase?

**** I came up with 18.75% for the answer which is not correct according to my teacher. My teacher states the answer is 75%

He uses the formula below

TR=percentage change in P + percentage change in Q. You must re-write the equation in terms of the percentage change in P and substitute in all the know data and solve. Hint use the elasticity formula (teacher)

salmonraven672

1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.

a) Construct a table showing the alternative combinations of the two products that are available.

b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?

c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?

2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,

a) what is its total revenue?

b) what is its total cost?

c) what is its profit or loss?

d) will it continue to produce screwdrivers?

e) If this firmâs situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?

3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?

a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity

b)Demand decreases and supply is constant.

c)Supply increases and demand is constant.

d)Demand increases and supply increases.

e)Demand decreases and supply decreases.

4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zekeâs income and the cost of other types of entertainmentâin particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.

a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?

b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?

PRICE	D1	D2	D3
50	10	5	12
40	15	10	25
30	25	15	40

Income 60,000 60,000 80,000

Cost of revenue 10 12 12

5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.