🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000US530,000

01:220:102 Lecture Notes - Lecture 6: Demand Curve, Bomb Disposal, Inferior Good

25 views3 pages
coffeespider776
17 Jun 2016
School
Rutgers University
Department
Economic
Course
01:220:102
Professor
Colin Campbell

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

chrisfive2005 and 37653 others unlocked
01:220:102 Full Course Notes
57
01:220:102 Full Course Notes
Verified Note
57 documents

Document Summary

Defining and measuring elasticity: calculating the price elasticity of demand: the ratio of the percent change in quantity demanded to the percent change in price as one moves along the demand curve a. i. Predicts the effect of price changes on total revenue a. ii. % change supply / % change demand = price elasticity of demand a. v. Law of demand: demand curves are downward sloping, so price and quantity demanded always move in opposite directions a. vi. Economists drop the negative and use absolute value when discussing price elasticity of demand: an alternative way to calculate elasticities: the midpoint method b. i. Calculate changes in a variable compared with the average, or midpoint, of the starting and final values b. ii. Interpreting the price elasticity of demand: how elastic is elastic? a. i. Perfectly inelastic demand: quantity demanded does not respond at all to changes in the price a. i. 1. a. i. 2.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

01:220:102 Chapter Notes - Chapter 6: Midpoint Method, Demand Curve, Unit
chocolatepanda480
01:220:102 Chapter Notes - Chapter 6: Midpoint Method, Demand Curve, Negative Number
lilacpug424
01:220:102 Chapter Notes - Chapter 6: Demand Curve, Midpoint Method, Normal Good
mauveporcupine901

Related Questions

1. Messiah Deweaver produces and sells green and white footballs. If he increases the price by 10 percent, he finds that the quantity demanded of these footballs decreases from 1025 to 975 balls per day. Assuming no other things change and using the midpoint method where appropriate, the price elasticity of demand for his footballs would be:

-

unitary elastic
-

2 and his total sales revenue would increase
-

2 and his total sales revenue would decrease
-

0.5 and his total sales revenue would increase
-

0.5 and his total sales revenue would decrease

2. Spartan Lemon-Lime and Sprite are substitute goods. An increase in the price of Spartan lemon-lime will:

-

shift the demand curve for Spartan Lemon-Lime to the left
-

shift the demand curve for Sprite to the left
-

shift the supply curve of Spartan Lemon-Lime to the right
-

decrease the price of Sprite
-

increase the price of Sprite

Question 16

  1. If price is cut and demand is elastic, total revenue will rise because

    the change in quantity demanded is greater than the percent change in price.

    the percent change in quantity demanded is greater than the change in price.

    the percent change in quantity demanded is greater than the percent change in price.

    customers can't find substitutes.

3 points

Question 17

  1. If price is cut and demand is inelastic, total revenue will fall because

    the change in quantity demanded is less than the percent change in price.

    the percent change in quantity demanded is less than the change in price.

    the percent change in quantity demanded is less than the percent change in price.

    customers can find substitutes.

3 points

Question 18

  1. If something is addictive, then

    price and demand are inversely related.

    price elasticity of demand is equal to one.

    demand is perfectly inelastic.

    demand is perfectly elastic.

3 points

Question 19

  1. In general, elasticities measure

    the change in quantity demanded when a product attribute changes.

    the change in consumer spending when income changes.

    the change in an attribute for a percentage change in price.

    the percentage change in the quantity demanded resulting from a fixed percentage change in some attribute.

3 points

Question 20

  1. Average total costs are defined as

    total costs divided by the change in output.

    total costs divided by output.

    the change in total costs when output changes.

    average variable costs plus marginal costs.

3 points

Question 21

  1. If a firm is experiencing economies of scale, then the long-run average cost curve is

    falling.

    rising.

    horizontal.

    shifting.

3 points

Question 22

  1. If average total cost is rising

    marginal cost is above average total cost.

    marginal cost is rising.

    marginal product is rising.

    marginal cost is above average total cost and is falling.

3 points

Question 23

  1. The period of time over which all inputs are variable is the

    market horizon.

    short run.

    calendar year.

    long run.

3 points

Question 24

  1. The supply chain refers to

    the supply curve.

    the process of outsourcing.

    the process of downsizing.

    the process of creating and selling a product.

3 points

Question 25

  1. When the capital (a fixed input) changes

    short-run marginal costs rise.

    short-run average total costs fall but do not shift.

    labor inputs decline.

    the short-run average total cost curve shifts.

3 points

Question 26

  1. A market of price takers is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 27

  1. A market with a single seller is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 28

  1. A market that mainly stresses product differentiation is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 29

  1. Entry into a competitive market will continue until

    economic profits are zero.

    normal profits are zero.

    when accounting losses are zero.

    a. and b. are true

3 points

Question 30

  1. Firms in an oligopoly

    act independently.

    engage in strategic behavior.

    have perfect knowledge of the behavior of others.

    openly collude.

1. Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.

(a) A hurricane in South Carolina damages the cotton crop.

(b) The price of leather jackets falls.

(c) All colleges require morning exercise inappropriate attire

(d) New knitting machines are invented.

 

2. (a) What is the definition of quantity demanded?

(b) What is the definition of quantity supplied?

(c) List the 5 factors that cause the demand curve to shift to the left or the right.

(d) Choose one of the factors from part (b) and consider the market for bananas. On a well-labeled diagram, demonstrate what will occur in this market if there is a change in this factor.

(e) List the 4 factors that cause the supply curve to shift to the left or the right.

(f) Choose one of the factors from part (e) and consider the market for scooters. On a well-labeled diagram, demonstrate what will occur in this market if there is a change in this factor.

(g) Choose one factor from part (b) and another from part (e) and consider the market for minivans. On a well-labeled diagram, demonstrate what will occur in this market given the change in both factors. (Hint: Draw separate diagrams for parts (d), (f), & (g))

3. Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows:

page1image3877024

(a) Draw the demand and the supply curves. What is unusual about this supply curve? Why might this be true?

(b) What are the equilibrium price and quantity of tickets?

(c) Your college plans to increase total enrollment next year by 5,000 students. The additional students will have the following demand schedule:

page1image3870304

Now add the old demand schedule and the demand schedule for the new students to calculate the new demand schedule for the entire college. What will be the new equilibrium price and quantity?

 

 

4. Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation QD = 1600 − 300P, where QD is the quantity demanded and P is the price. The supply schedule can be represented by the equation QS = 1400 + 700P, where QS is the quantity supplied.

(a) Sketch a graph representing the market for chocolate bars. Identify the equilibrium point on your graph.

(b) Calculate the equilibrium price and quantity in the market for chocolate bars.

 

5. For each of the following pairs of goods, which good would you expect to have more elastic demand and why?

(a) Required textbooks or mystery novels

(b) Beethoven recordings or classical music recordings in general

(c) Subway rides during the next six months or subway rides during the next five years

(d) Root beer or water

(e) Insulin or Tylenol

(f) Food or bananas

 

6.Consider the following information from the market for lemonade:

Price Quantity Demanded Quantity Supplied
$1 500 cups 150 cups
$2 200 cups 310 cups

(a)  As the price changes from $1 to $2, what is the value of price elasticity of demand?

(b)  As the price changes from $1 to $2, what is the value of price elasticity of supply?

(c)  Sketch a diagram demonstrating the market for lemonade. Are the supply and demand curves relatively inelastic or elastic? Explain.

(d)  Suppose that when the price of lemonade increases from $1 to $2, the quantity demanded of orange juice increases from 150 cups to 190 cups. Calculate cross-price elasticity of demand for orange juice.

(e)  Are orange juice and lemonade substitute or complementary goods? Explain.

 

7. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

page2image1834528

(a)  As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations)

(b)  Why might vacationers have a different elasticity from business travelers?

 

8. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run.

(a)  If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demand in the short run? In the long run? (Use the midpoint method in your calculations)

(b)  Why might this elasticity depend on the time horizon?


9. The Government has decided that the free-market price of cheese is too low.

(a) Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and-demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a shortage or surplus of cheese?

(b) Farmers complain that the price foor has reduced their total revenue. Is this possible? Explain

(c) In response to farmer's complaints, the government agrees to purchase all the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?