ECON 1 Lecture Notes - Lecture 5: Carpool, Normal Good, Breakfast Cereal

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greyrabbit304

19 Apr 2018

School

Santa Clara University

Department

Economics

Course

ECON 1

Professor

Cameron- Loyd

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Document Summary

What determines price elasticity: to learn the determinants of price elasticity, we look at a series of examples. Each compares two common goods: example 1: breakfast cereal vs. sunscreen, the prices of both of these goods rise by 20%. Why: to millions of diabetics, insulin is a necessity. A rise in its price would cause little or no decrease in demand: a cruise is a luxury. If the price rises, some people will forego it: lesson: price elasticity is higher for luxuries than for necessities, example 4: gasoline in the short run vs. Gasoline in the long run: the price of gasoline rises 20%. Why: there"s not much people can do in the short run, other than ride the bus or carpool. In the long run, people can buy smaller cars or live closer to where they work: lesson: price elasticity is higher in the long run than the short run.

Related Questions

Demand curve is P=-Q+90 and the supply curve is P=0.5Q

1- find equilibrium price and quantity

2- whats the level of total expenditure in the market?

3- whats the price elasticity of demand at the equilibrium?

4- calculate consumer surplus

5- if there's a law to prevent you from consuming this good, how much should you be compensated by the government to accept it?

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

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.

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ECON 1 Lecture Notes - Lecture 5: Carpool, Normal Good, Breakfast Cereal

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