ECON-E 201 Lecture Notes - Lecture 10: Demand Curve, Inferior Good, Ramen

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plumhorse517

12 Jan 2017

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Department

Economics

Course

ECON-E 201

Professor

Graf Paul

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ECON-E 201 Full Course Notes

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Document Summary

Apply to total revenue and expenditure and explain their determinants: define, measure, interpret income elasticity, cross-price elasticity, and elasticity of supply. Elasticity and total revenues sensitivity to price changes: elastic demand- % change in qd > % change in price. Inelastic demand- % change in qd < % change in price: unit elasticity of demand- % change in qd = % qd in price. Higher means more sensitivity to price change. = means perfectly elastic- horizontal demand curve, maximum possible. =(cid:882) means perfectly inelastic- vertical demand curve, no sensitivity to price. If (cid:1842) increases, (cid:1843) decreases; does not give info about effects on (cid:1844) changes in (cid:1844: unit elastic- price changes do not change (cid:1844) Inelastic- positive/direct relationship between price changes and changes in (cid:1844: total revenue test- estimates price elasticity of demand by observing change in (cid:1844) If price decrease raises (cid:1844), demand is elastic. If price decrease decreases (cid:1844), demand is inelastic.

Related Questions

Price Elasticity		Income Elasticity		Cross-Price Elasticity
\|ep\| > 1	Elastic	ei < 0 ei > 0	Inferior good Normal good	ec < 0	Complementary good
\|ep\| < 1	Inelastic	0< ei < 1 ei > 1	Necessity Luxury	ec > 0	Substitute good
\|ep\| = 1	Unit Elastic

Technical Questions

Using the elasticity table (above), you have the following information for your product: (1) The price elasticity of demand is -2.0; (2) The income elasticity of demand is 1.5; and, (3) The cross-price elasticity of a related good is -3.5. What can you determine about consumer demand for your product from this information?â¨â¨

Using the elasticity table (above), you have the following information for your product: (1) The price elasticity of demand is -.9; (2) The income elasticity of demand is .5; and, (3) The cross-price elasticity of a related good is 2.0. What can you determine about consumer demand for your product from this information?

What are the three determinants of price elasticity of demand

What are the three determinants of price elasticity supply?

Name and describe the three kinds of product innovation.

Name and describe a marketing approach (that we discussed in class) that can be used to understand consumer behavior and/or estimate demand.

Name and describe a statistical approach (that we discussed in class) or technique that can be used to understand consumer behavior and/or estimate demand.

Name a psychological model (that we discussed in class) that can be used to understand consumer behavior and/or estimate demand.

Name and describe the six types of consumers.

How do fixed and variable costs differ in the short-run and long-run?

Jim is considering quitting his job and using his savings to start a small business. He expects that his costs will consist of a lease on the building, inventory, wages, electricity, and insurance.

11A. Identify which costs are explicit and which are opportunity (implicit) costs.

11B. Identify which costs are fixed and which are variable.

What is the law of diminishing returns? What are economies of scale and diseconomies of scale? Be sure to note the terms apply to the short run and the long run.

Application Questions

1. How can entrepreneurs shift elasticity of demand and elasticity of supply? Draw on the three determinants for each in your answer.

2. How can entrepreneurs be innovative in production for the short-term and the long-term? Draw on concepts like diminishing returns, diseconomies of scale, and economies of scale in your answer.

redfish597

Question 1

If economic profits are zero

		accounting profits is less than the cost of capital.
		accounting profit is just covering the cost of capital.
		the cost of capital is negative.
		the entrepreneur should go to his/her next best alternative.

3 points

Question 2

Markets provide

information.

prices.

incentives.

all of these choices.

3 points

Question 3

The entrepreneur is always searching for

positive profit.

normal profit.

accounting profit.

economic profit.

3 points

Question 4

Social regulations can create

a more competitive market place.

network externalities.

a lower HHI.

barriers to entry.

3 points

Question 5

According to economic theory, profits are maximized where

total revenue equals total cost.

marginal revenue equals marginal cost.

price and average cost are equal.

where marginal product and average cost are equal.

3 points

Question 6

Brand names help

create commodities.

maintain market power.

create competition.

keep economic profits at zero.

3 points

Question 7

Entry of new firms causes

accounting profits to go to zero.

market share to grown.

economic profits to go to zero.

total revenue to be maximized.

3 points

Question 8

Fixed costs

do not vary with output

vary with output

do not vary with price

vary with price

3 points

Question 9

Variable costs

do not vary with price.

do not vary with output.

vary with price.

vary with output.

3 points

Question 10

Value maximization means

		that managers make decision so as to increase the long-run market value of the financial claims on the firm.
		that a firm should make products that have the highest price.
		that managers make decision so as to increase the short-run market value of the financial claims on the firm.
		all of these choices.

3 points

Question 11

A manager can determine if her product is viewed as a normal good or an inferior good by considering

price elasticity.

cross elasticity.

income elasticity.

advertising elasticity.

3 points

Question 12

If demand is perfectly elastic,

		the smallest increase in price will cause quantity demanded to fall to zero.
		the smallest increase in price will cause demand to fall to zero.
		the smallest increase in price will cause quantity demanded to fall.
		the smallest increase in price will cause demand to fall.

3 points

Question 13

If demand is perfectly elastic, then

demand and price are inversely related.

quantity demanded and price are inversely related.

the demand curve is a vertical line.

the demand curve is a horizontal line.

3 points

Question 14

If price elasticity is 3.25 then

		for every one percent change in price, there will be a 3.25 percent change in quantity demanded.
		for every one percent change in price, there will be a 3.25 percent change in demand.
		for every one percent change in price, there will be a 32.5 percent change in quantity demanded.
		for every one percent change in price, there will be a .0325 percent change in quantity demanded.

3 points

Question 15

If price elasticity is 3.25, then demand is

inelastic.

elastic.

unitary.

negative.

1. In economics, the demand for a good refers to the amount of the good that people:
a. Will buy at alternative income levels
b. Need to achieve a minimum standard of living.
c. Will buy at various prices
d. Would like to have if the good were free
2. The term ceteris paribus means that:
a. What is for the individual is not necessarily true for the whole
b. All variables except those specified are constant
c. Everything is variable
d. No one knows which variables will change and which will remain constant.
3. When economist talk about supply, they are referring to a relationship between price received for each unit sold and the ____________________.
a. Quantity supplied
b. Demand schedule
c. Demand curve
d. Market price
4. But nearly all supply curves share a basic similarity: they slop______________.
a. Up from left to right
b. Down from left to right
c. Up from right to left
d. Down from right to left
5. The nature of demand indicates that as the price of a good increases:
a. Suppliers wish to sell less of it.
b. Buyers desire to purchase less of it
c. More of it is desired
d. More of it is produced
6. Any given demand or supply curve is based on the certeris paribus assumption that _______.
a. Everything is variable
b. All else is held equal
c. No one knows which variables will change and which will remain constant
d. What is true for the individual is not necessary true for the whole.
7. Economist refer to the relationship that a higher price leads to lower quantity demand as the ______________.
a. Price model
b. Law of demand
c. Market equilibrium
d. Income gap
8. A perfect elastic supply curve is:
a. Vertical
b. Downward sloping to the left
c. Horizontal
d. Upward sloping to the right
9. A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:
a. Elasticity of demand for iced tea is 2 and is elastic
b. Cross-price elasticity of demand for iced tea is -2
c. Cross-price elasticity of demand for soda is -0.5
d. Elasticity of demand for soda 0.5 AND IS INELASTIC
10. ___________ is the change in what is on the horizontal axis (quantity) divided by the change in what is the vertical axis (price).
a. Elasticity
b. Supply
c. Demand
d. Revenue
11. A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
a. The supply curve and the rightward shift of the demand curve resulting in a higher equilibrium price
b. Both the supply and demand curves
c. The supply curve
d. The demand curve, as consumers try to economize because the shortage.
12. Got the answer.
13. A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the _____________.
a. Demand curve to the right
b. Supply curve to the left
c. Supply curve to the right
d. Demand curve to the left
14. Interpret the following statements:

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ECON-E 201 Lecture Notes - Lecture 10: Demand Curve, Inferior Good, Ramen

ECON-E 201 Full Course Notes

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Related Questions

		positive profit.
		normal profit.
		accounting profit.
		economic profit.

		a more competitive market place.
		network externalities.
		a lower HHI.
		barriers to entry.

		total revenue equals total cost.
		marginal revenue equals marginal cost.
		price and average cost are equal.
		where marginal product and average cost are equal.

		create commodities.
		maintain market power.
		create competition.
		keep economic profits at zero.

		accounting profits to go to zero.
		market share to grown.
		economic profits to go to zero.
		total revenue to be maximized.

		do not vary with output
		vary with output
		do not vary with price
		vary with price

		do not vary with price.
		do not vary with output.
		vary with price.
		vary with output.

		price elasticity.
		cross elasticity.
		income elasticity.
		advertising elasticity.

		demand and price are inversely related.
		quantity demanded and price are inversely related.
		the demand curve is a vertical line.
		the demand curve is a horizontal line.

		information.
		prices.
		incentives.
		all of these choices.