EC 201 Lecture Notes - Lecture 6: Midpoint Method, Demand Curve

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chocolatewoodchuck967

25 Apr 2018

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How do we define the responsiveness of consumers in economics. The ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve. Price elasticity of demand = (%change in quantity demand)/(%change in price) D= measures consumer response to changes in prices. Consumers response more to a change in p. D = inelastic --> low/no response in the market; pe. Midpoint method: calculates changes in a variable compared w/the average (midpoint) of the starting and final values. Interpreting the price elasticity of demand: 2 extreme cases of price elasticity of demand. Consumer will have to pay for the good regardless to price. Elasticity predicts how changes in the price of a good will affect the total revenue earned by producers from selling a good. The total value of sales of a good/service. When da seller rasies the price of a good there are two effects/which ever effect dominates.

Related Questions

Ch. 6: Simple Pricing

a. define the Law of Demand?

b. Explain the distinction between a change in demand and a change in quantity demanded?

c. create a demand curve from a simple demand schedule in Table 6.2?

d. determine the calculated values in a table such as Table 6.4?

e. Can you apply your understanding of Chapter 4s marginal analysis to pricing decisions in a price-making (versus price-taking) firm?

f. Can you explain in words what Own Price Elasticity, Cross-Price Elasticity, and Income Elasticity mean?

g. Given specific values for Own-Price Elasticity of Demand, can you determine whether demand for the good is elastic, inelastic, or unit elastic?

h. Given specific values for Cross-Price Elasticity, can you determine whether the two goods are substitutes or complements?

i. Given specific values for Income Elasticity, can you determine whether the good is a normal or inferior good?

j. Can you calculate each of these elasticities, such as in the homework?

k. Identify relatively elastic and inelastic demand curves?

l. List factors that may affect demand elasticity.

m. Indicate whether total revenue will increase or decrease as a result of a price change, depending on the demand elasticity?

The textbook used for this assignment is Managerial Economics, Froeb Chapters.

rubylouse898

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

From the scenario for Katrinaâs Candies, examine the procedure Herb will use to estimate the "demand model" for this product and comment on the expected price elasticity, income elasticity, and cross price elasticity of demand. That is, do you expect demand to be price elastic or inelastic? Will the income elasticity suggest Katrina Candies is a luxury or a necessary good? And, is there likely to be a strong cross price elasticity with the other products that Herb included in his demand model? Explain your answers. What can you determine about consumer demand for a product whose estimated demand elasticities are as follows: Price Elasticity of demand is -0.85 Income Elasticity of demand is 2.5 Cross Price Elasticity of demand with this product and your product is -2 I would like you to think about this simple formula for predicting the change in total revenue when there is a given percentage change in price. Using the example above, if ED (price elasticity of demand) is -.85, then a 10% increase in price will cause the quantity demanded to fall by 8.5%, (-8.5% / 10% = -.85). The Formula for Predicting % Changes in Total Revenue is: %ÎTR = %ÎQ + %ÎP where TR = Total Revenue, Q is Quantity Demanded and P = price. Using this formula, what would be the % Î in TR if ED is -.85 and the %ÎP is 10%?

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EC 201 Lecture Notes - Lecture 6: Midpoint Method, Demand Curve

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