ECON 160 Lecture 7: Elasticity

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harlequinsea-lion31

14 Oct 2016

School

Binghamton University

Department

Economics

Course

ECON 160

Professor

Olde

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Document Summary

Small portion of income large portion of income. Elasticity coefficient less than 1 elasticity coefficient greater than 1. Price: graph is a horizontal line, price elasticity of supply is infinite price elasticity of demand. % (cid:1866) (cid:1869)(cid:1873)(cid:1866)(cid:1872)(cid:1872) (cid:1857)(cid:1865)(cid:1866)(cid:1856)(cid:1857)(cid:1856) (cid:1867)(cid:1858) (cid:1867)(cid:1867)(cid:1856) (cid:1850) % (cid:1866) (cid:1868)(cid:1870)(cid:1855)(cid:1857) (cid:1867)(cid:1858) (cid:1867)(cid:1867)(cid:1856) (cid:1850) < 0 means it is an inferior good cross-price elasticity of demand. > 0 means x and w are substitute gods. = 0 means x and w are unrelated goods. < 0 means x and w are complementary goods price elasticity of. % (cid:1866) (cid:1869)(cid:1873)(cid:1866)(cid:1872)(cid:1872) (cid:1871)(cid:1873)(cid:1868)(cid:1868)(cid:1864)(cid:1857)(cid:1856) (cid:1867)(cid:1858) (cid:1867)(cid:1867)(cid:1856) (cid:1850) % (cid:1866) (cid:1868)(cid:1870)(cid:1855)(cid:1857) (cid:1867)(cid:1858) supply ! (cid:1867)(cid:1867)(cid:1856) (cid:1850: most goods have inelastic supply in the short-run, most goods have elastic supply in the long-run price elasticity of. Demand and total revenue utility maximization rule the consumer"s money should be spent so that the marginal utility per dollar of each. P and tr move in the same direction.

Related Questions

If the price elasticity of demand for a product is -2, this implies that:

A. if the price increases by 2 percent, the quantity demanded will decrease by 1 percent.

B. if the price increases by $1, the quantity demanded will decrease by 2 units.

C. the change in quantity demanded divided by the change in price is equal to 2.

D. if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.

E. if the price increases 1 unit, the quantity demanded will decrease by 2 units.

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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.

Which of the following is not characteristic of the demand for a commodity that is elastic?

A. The relative change in quantity demanded is greater than the relative change in price.

B. Buyers are relatively sensitive to price changes.

C. Total revenue increases if price is increased.

D. The elasticity coefficient is greater than one

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ECON 160 Lecture 7: Elasticity

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