ECO101H1 Lecture Notes - Demand Curve, European Route E20, Inferior Good

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jadesalmon88

20 Jan 2011

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Topic 4 j elasticity of demand (week 3-4 sep 29th j oct 4th) You own the only spring in town, which produces sparkling water that you sell for a bottle; You have no costs, so that your profit equals your total revenue (price x quantity sold); Q1: if you raise your price: consumer who continues to buy your water would pay more; you earns more money per bottle; Revenue = price x quantity; price goes up while quantity sold goes down. Elasticity of demand measures the responsiveness of quantity demanded to a change in price. Formula: elasticity of demand = % change in quantity demanded = %qd. % change in price %p (due to the law of downward-sloping demand, the elasticity will be negative; just ignore the negative sign. : mid-point convention (calculating %change) %qd = qd (change in quantity demanded over average quantity demanded); %p = p (change in price over average price)

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

Which of the following statements about price elasticity of demand is false?
A) The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.
B) If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic.
C) The value of the price elasticity of demand along a downward-sloping demand curve is always negative.
D) The elasticity is different on every point of a linear downward-sloping demand.