ECON 200 Lecture Notes - Lecture 4: Demand Curve, Midpoint Method

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aquamarineminnow60

4 Oct 2018

School

University of Maryland

Department

Economics

Course

ECON 200

Professor

Hossien Abbasi

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Document Summary

Elasticity : is a measure of the responsiveness or sensitivity to a change in a market condition. The concept applies to supply and demand. It measures the response to a change in: The price elasticity of demand measures the magnitude of change in the quantity demanded from a change in its price. Definition of price elasticity of demand need to know. % change in price if the price change from p1(old price) to p2(new price): % change in quantity if the price change from p1 to p2 and as a result, quantity demanded changes from q1(old quantity) to q2(new quantity): Once do this divide price/quantity and make sure its negative. The direction of change affects the elasticity. We dont like this to happen so we use midpoint method. The midpoint method calculates the elasticity at the midpoint of any 2 points. (use this from now on)the formula is:

Related Questions

a. Determine the price elasticity of demand at each quantity demanded using the arc or midpoint formula: Percentage change in quantity demanded =(Q2-Q1)/Q1 divided by percentage change in price= (P2-P1)/P1.

b. Redo exercise using price changes of $10 rather than $5.

oliveant927

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

a) What is the advantage of using the price elasticity rather than the slope of the demand curve or its inverse to measure the responsiveness in the quantity demanded of a commodity to a change in its price?

b) Why and how is the formula for arc price elasticity of demand different from the formula for point price elasticity of demand?

lemonsea-lion739

ECON 200 Lecture Notes - Lecture 4: Demand Curve, Midpoint Method

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