ECON 101 Lecture Notes - Lecture 4: Perfect Competition, Apple Pie, Time Horizon

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blueclam380

1 Oct 2016

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Elasticity = measure of responsiveness of an economic actor to changes in market factors, including price and income. Price elasticity = responsiveness of economic actors to changes in market prices. Income elasticity = responsiveness of economic actors to changes in his/her income. Total pro t = total revenue - total cost. Price = with a quantity of 100. Price = with a quantity of 300. Elasticity allows us to analyze supply and demand with greater precision. Inelastic demand = consumer is not responsive to price - they"ll pay anything. Price elasticity of demand is less than 1. Elastic demand = consumer is very sensitive to price, will only pay the price they want. Price elasticity of demand is greater than 1. Elasticity and the slope of a demand curve. Instead of looking at unit change, we look at percentage change. Example: paul used to weigh 200 lbs, but now he only weighs 175 lbs.

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

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

1. What would you expect to happen to spending on food at home and spending on food in restaurants during a decline in economic activity? How would income elasticity of demand help explain these changes?

2. The equation for a demand curve has been estimated to be Qd = 100 – 10P + 0.5Y, where Q is quantity, P is price and Y is income. Assume P = 9 and Y = 100.

a. Interpret the equation.

b. At a price of 9, what is price elasticity and what does it mean in terms of the revenue of the company?

c. At an income level of 100, what is income elasticity and what does it mean?

d. Calculate the arc elasticity between a price of 9 and a price of 12

taupeelk613

ECON 101 Lecture Notes - Lecture 4: Perfect Competition, Apple Pie, Time Horizon

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