HON 1302 Lecture Notes - Lecture 3: Demand Curve

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erinhound847

31 Jan 2017

School

St. John's University

Department

HON - HONORS

Course

HON 1302

Professor

Tomic

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Document Summary

Amount that a firm receives from selling its products and services. Represented by the area under demand curve. At each point on the line, revenue = price x quantity. At the point indicated on the graph, the quantity is 3, and the price is 7. Thus revenue = 7 x 3, revenue = 21. If the demand line is straight (as is the one pictured above) the revenue is greatest at the midpoint. Sometimes if a firm decreases prices, revenues increase. Sometimes if a frim increases prices, revenues increase. So how can a firm decide whether to increase or decrease prices in order to increase revenue: elasticity of demand can help up answer this question. Measures the responsiveness of quantity to a change in price. Helps to resolve the issue of how revenue will change if we change the price of a product. E = (% change in quantity)/(% change in price) % change in quantity = (q2-q1)/(q1) x 100.

Related Questions

1. Grand TV Manufacturer wants to increase the quantity of TVs it sells by 8%. If the price elasticity of demand is 4, the manufacturer must:

a. decrease price by 1.5%.

b. increase price by 1.5%.

c. increase price by 2.0%.

d. decrease price by 2.0%.

2. Suppose that an Italian ice cream firm is facing a linear demand curve and that the current price for the Italian ice cream is set at a point where the price elasticity is 0.7. If the firm decreases the product price,

Select one:

a. the demand becomes less inelastic, and total revenue increases.

b. the demand becomes more inelastic, and total revenue decreases.

c. the demand becomes more inelastic, and total revenue increases.

d. the demand becomes less inelastic, and total revenue decreases.

3. Suppose that in a month, the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is:

a. elastic.

b. zero.

c. inelastic.

d. unitary elastic.

4. The price elasticity of demand for color printers is 1.6, and you would like to see the quantity demanded of color printers increase by 32%. Then the percentage change in price should be:

Select one:

a. 15%.

b. 25%.

c. 10%.

d. 20%.

5. The price of apple increases from $1 to $1.10. At the same time, the quantity of apples demanded decreases from 100 to 90. The price elasticity of demand for apples (calculated using the initial value formula) is:

a. 0.9.

b. 0.02.

c. 1.1.

d. 1.

cyanspider596

Price Demand Supply

$10 5 105

$9 10 90

$8 15 75

$7 20 60

$6 25 45

$5 30 30

$4 35 15

$3 40 0

Question 7: Calculate the price elasticity of demand at the equilibrium price

(range is from $1 below equilibrium to $1 above equilibrium)

Question 8: Would firms increase revenue with a cut in prices or not? Why or why not?

Question 9: If supply and demand increase at the same time, what happens to

the equilibrium quantity?

Question 10: If supply decreased and demand increased at the same time, what happens to

the equilibrium price?

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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HON 1302 Lecture Notes - Lecture 3: Demand Curve

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