ECON 201 Lecture Notes - Lecture 5: Demand Curve, Inferior Good, Economic Equilibrium

15 views6 pages

goldjellyfish848

19 Jun 2018

School

Department

Course

Professor

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

ECON 201 – Lecture 5 – Chapters 6-7

*All charts and graphs based off or replicated by Joel Han in class

Elasticity of Linear Demand

Formula:

o∑D = (∆QD / ∆PD) X (PD / QD) --- Don’t really need to know, just to show the

formula

(∆QD / ∆PD) = Slope of linear demand curve

(PD / QD) = Changes along the demand curve

Price elasticity goes from 0 to ∞ moving down a linear demand curve

Total Revenue (TR) – Amount of money paid by buyers, and received by sellers

oRepresented by TR = P*Q

find more resources at oneclass.com

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in

oIf price increases, quantity demanded falls. Does that mean Total revenue would

go up or down?

We’ll work this out.

If TR = P*Q, and the line is elastic represented by ∑D>1, and Price

goes up while Quantity goes down…

If demand is elastic then Quantity demanded falls by more than

the price increase… therefore Total Revenue Decreases

Say now that this is an inelastic line, Quantity demanded falls by

less than the price increases, so Total Revenue increases

Other Kinds of Demand Elasticity

Elasticity can be defined for other things besides prices of goods and services

oIncome elasticity of demand = % change of QP / % change of income

oY is Income… Equation would look like:

∑Y = (∆QD / QD) X (Y / ∆Y)

In a normal good, ∑Y > 0

In an inferior good, ∑Y < 0

Cross price elasticity

Income elasticity of demand = % change in QD / % Change in price of other good

oX = Demand

oRepresented by formula ∑X = (∆QD / QD) X (PX / ∆PX)

oX is a complement when ∑X < 0

oX is a substitute when ∑X > 0

find more resources at oneclass.com

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Econ 201 lecture 5 chapters 6-7. *all charts and graphs based off or replicated by joel han in class. Price elasticity goes from 0 to moving down a linear demand curve. Total revenue (tr) amount of money paid by buyers, and received by sellers: represented by tr = p*q, if price increases, quantity demanded falls. If tr = p*q, and the line is elastic represented by d>1, and price goes up while quantity goes down . If demand is elastic then quantity demanded falls by more than the price increase therefore total revenue decreases. Say now that this is an inelastic line, quantity demanded falls by less than the price increases, so total revenue increases. Elasticity can be defined for other things besides prices of goods and services: income elasticity of demand = % change of qp / % change of income, y is income equation would look like: Y = ( qd / qd) x (y / y)

Related Questions

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%?

lilaccattle807

Question 1 (1 point) Question 1 Unsaved In a competitive market the equilibrium price is determined: Question 1 options: at the intersection of the firmâs demand and the market supply curves. at the intersection of the market demand and supply curves. at the intersection of the firmâs demand and marginal cost curves. so as to cover the costs of the potential firms. so as to cover the costs of the firms currently in the industry. Save Question 2 (1 point) Question 2 Unsaved If the perfectly competitive market demand for gym shoes is given by QD = 100 â P and the market supply is given by QS = 10 + 2P, then the equilibrium price and quantity will be: Question 2 options: P = 50 and Q = 50. P = 40 and Q = 90. P = 40 and Q = 60. P = 30 and Q = 70. P = 25 and Q = 75. Save Question 3 (1 point) Question 3 Unsaved A constant-cost industry is one in which: Question 3 options: input prices do not change over time. technology does not change over time. input prices and technology do not change as firms enter or exit the industry. input prices and technology do not change over time. firms have reached the maturity phase of the industryâs life cycle. Save Question 4 (1 point) Question 4 Unsaved At the profit-maximizing level of output for the monopolist: Question 4 options: total revenue is equal to total cost. total costs are minimized. total revenue is maximized. marginal revenue is equal to marginal cost. average revenue is equal to average cost. Save Question 5 (1 point) Question 5 Unsaved Craigâs Red Sea Restaurant is the only restaurant in Columbia, South Carolina, that sells Ethiopian food. The demand for Ethiopian food is given by Q = 25 â P. Craigâs costs are given by TC = 25 + Q + 5Q2. Its maximum monopoly profit is: Question 5 options: â$1. $21. $22. $24. $26. Save Question 6 (1 point) Question 6 Unsaved So long as price exceeds average variable cost, in the model of monopolistic competition, a firm maximizes profits by producing where: Question 6 options: the difference between marginal revenue and marginal cost is maximized. marginal cost equals marginal revenue. marginal revenue equals price. the difference between price and marginal cost is maximized. price equals marginal cost. Save Question 7 (1 point) Question 7 Unsaved If a firm in a monopolistically competitive industry is profit maximizing, it should choose its level of advertising such that the marginal revenue of an additional dollar of advertising: Question 7 options: is equal to the elasticity of its demand curve minus 1. is exactly $1. increases revenues by $1. is equal to 1 plus the elasticity of its demand curve. is equal to the elasticity of its demand curve. Save Question 8 (1 point) Question 8 Unsaved Firms advertise in order to: Question 8 options: build brand loyalty. appeal to the price-sensitive consumers. increase the demand elasticities of their loyal customers. shift the market supply curve to the left. shift the market demand curve to the left. Save Question 9 (1 point) Question 9 Unsaved Firms offer promotions in order to: Question 9 options: build brand loyalty. appeal to the price-sensitive consumers. increase the demand elasticities of their loyal customers. shift the market supply curve to the left. shift the market demand curve to the left. Save Question 10 (1 point) Question 10 Unsaved If the demand increases for the product of a decreasing-cost industry: Question 10 options: short-run price goes up, but long-run price falls. long-run output goes up, but long-run price may go up or down. short-run output goes up, but long-run output may go up or down. long-run output goes up, but short-run price remains constant. long-run price goes up, but short-run price may go up or down. Save Question 11 (1 point) Question 11 Unsaved If the demand increases for the product of an increasing-cost industry: Question 11 options: short-run price goes up, but long-run price falls. long-run output goes up, but long-run price may go up or down. short-run output goes up, but long-run output may go up or down. long-run output goes up, but short-run price remains constant. short-run price goes up, and long-run price goes up. Save Question 12 (1 point) Question 12 Unsaved When Pan United Airlines gives a $400 fare discount to persons with student IDs, they are practicing: Question 12 options: first-degree price discrimination. second-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 13 (1 point) Question 13 Unsaved When a utility charges homeowners less than big industrial users, it is practicing: Question 13 options: first-degree price discrimination. fourth-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 14 (1 point) Question 14 Unsaved Cereal manufacturersâ use of coupons can be partially explained by: Question 14 options: first-degree price discrimination. second-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 15 (1 point) Question 15 Unsaved If a firm supplies separable markets with price elasticities h1 and h2, it should set prices P1 and P2 so that: Question 15 options: P1h1 = P2h2. P1 /h1 = P2 /h2. P1(1 + 1/h1) = P2 (1 + 1/h2). P1/(1 â 1 /h1) = P2 / (1 â 1/h2). P1 = 1 â 1/h1 and P2 = 1 â 1/h2. Save Question 16 (1 point) Question 16 Unsaved If a firm supplies separable markets with price elasticities h1 = â3 and h2 = â2, it should set prices P1 and P2 so that: Question 16 options: P1 = P2. 3P1 = 2P2. 2P1 = 3P2. 2/3P1 = 1/2P2. 2P1 = 2/3P2. Save Question 17 (1 point) Question 17 Unsaved Women are often charged more than men for haircuts performed by the same haircutter. This is not considered price discrimination because: Question 17 options: women receive more consumer surplus from haircuts than men receive. haircutters claim to spend more time on womenâs hair, raising the cost of the haircut to the firm. firms make up the extra cost to consumers by giving women free samples of products. men receive more consumer surplus from haircuts than women receive. women have a lower price elasticity of demand for haircuts. Save Question 18 (1 point) Question 18 Unsaved If price is above the average variable cost but below the average total cost of a representative firm in a competitive industry: Question 18 options: there will be entry to the industry over time. there will be exit from the industry over time. the firms in the industry are just earning a normal rate of return. the firms in the industry are earning a supranormal rate of return. the industry is in long-run equilibrium. Save Question 19 (1 point) Question 19 Unsaved Joeâs T-shirts has costs given by TC = $100 + 3Q, where Q is the number of shirts. If Joe charges $5 each, the percentage markup for 100 shirts is: Question 19 options: 20%. 25%. 33%. 50%. 67%. Save Question 20 (1 point) Question 20 Unsaved In the model of monopolistic competition, there can be short-run: Question 20 options: losses or profits, but there must be profits in long-run equilibrium. profits, but there must be losses in long-run equilibrium. losses or profits, but there must be losses in long-run equilibrium. losses or profits, but there must be neither profits nor losses in long-run equilibrium. losses, but there must be profits in long-run equilibrium.

Could anyone help me understand how to go about solving this question? I would also like to learn how to set it up. Thank you.

1) Suppose the market demand curve for a good is represented by the linear equation Q = 100 - 0.5P. If the market price were to decrease from P = $40 to P = $30, then holding all other factors constant:

A)	the quantity demanded would increase by 10 units and total expenditures on the good would increase by $300

B)	the quantity demanded would increase by 5 units and total expenditures on the good would decrease by $650

C)	the quantity demanded would increase by 85 units and total expenditures on the good would increase by $2550

D)	the quantity demanded would decrease by 15 units and total expenditures on the good would decrease by $450

E)	the quantity demanded would decrease by 5 units and total expenditures on the good would increase by $150

F)	the quantity demanded would decrease by 25 units and total expenditures on the good would increase by $750

limeotter217

ECON 201 Lecture Notes - Lecture 5: Demand Curve, Inferior Good, Economic Equilibrium

Document Summary

Get access

Related Documents

ECON 201 Lecture Notes - Lecture 7: Tax Incidence, Economic Surplus, Demand Curve

ECON 201 Lecture Notes - Lecture 4: Demand Curve

ECON 201 Lecture Notes - Lecture 22: Oligopoly, Nash Equilibrium, Market Power

Related Questions