ECON-2110 Lecture Notes - Lecture 11: Economic Equilibrium, List Of Icarly Episodes

36 views2 pages

viridianmink65

27 Dec 2015

School

Department

Course

Professor

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

Document Summary

Understand elasticity what it means/how it is measured/how to. Change in market price and/or quantity occur only if demand or. 3 steps to figure out effect of event on p and q. 1 decide if demand, supply, or both shifted. 2 figure out in what direction it shifted. 3 use supply and demand graph to see how shift(s) affect equilibrium price and quantity. 4 if both shift, outcome depends on which is greater (s change or d change?: elasticity. Price elasticity: a measure of the responsiveness of quantity to changes in price. Elastic = more responsive to a change in price (smaller slope) Inelastic = less responsive to a change in price (larger slope) Elasticity is a measure of how much q changes as we move up or down curve. Knowing elasticities is crucial to business and policy makers. Common unit required for comparisons ----- percentage changes. Elasticity of demand = %change qd / %change p negative.

Related Questions

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.

a. If a 10 percent increase in price decreases the quantity demanded by 12 percent, the price elasticity of demand is ____________.

b. The price of strawberries falls from $1.50 to $1.00 per carton and the quantity demanded goes from 100,000 to 200,000 cartons. Calculate the price elasticity of demand and interpret it in words.

c. At the present level of consumption, 4,000 movie tickets, and at the current price, $5 per ticket, the price elasticity of demand for movie tickets is 1. Calculate the percentage by which the owners of movie theaters must reduce the price in order to sell 5,000 tickets.

d. The price elasticity of demand for ice-cream sandwiches is 1.2 at the current price of $0.50 per sandwich and the current consumption level of 100,000 sandwiches. Calculate the change in the quantity demanded when the price rises by $0.05.

e. Calculate the price elasticity of supply for web-design services when the price per hour rises from $100 to $150 and the number of hours transacted increases from 300,000 to 500,000. Is supply elastic, inelastic, or unit elastic?