ECON 200 Lecture Notes - Lecture 10: Demand Curve, Normal Good, Marginal Cost

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crimsonhorse758

6 Nov 2018

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Department

Economics

Course

ECON 200

Professor

Haideh Salehi-Esfahani

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ECON 200 Full Course Notes

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Law of demand -- market demand for a good. Keeping all other forces constant, if the price of a good rises, the quantity demanded will fall and vice versa. On a given demand schedule, quantity changes as a result of change in price. We can call this the effect of price on quantity (or the price effect ) But price is not the only force that affects how much consumers will purchase of a good. Income, laws & regulations, prices of related goods & services, location. When the price of a good rises (keeping all other forces constant) the quantity demanded falls (and vice versa). This is called a change in the quantity demanded of the good. When a force other than the price of the good changes, the whole demand behavior shifts (its location changes!). This is called a change in the demand for the good. Effect of income changes on the demand for a good:

Related Questions

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

Discussion #1

The law of demand states that a fall in the price of a good raises the quantity demanded, and the increase in price leads to a decrease in quantity demanded. The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price, and the percentage change in quantity demanded is greater than the percentage change in price. Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price, which indicates that the percentage in price is greater than the percentage in quantity demanded.

However, the extent of responsiveness of quantity demanded to a change in price depends on the nature of a particular good or service in the market. The price elasticity of demand partly depends on the availability of close substitutes. When a large number of substitutes are available, consumers respond to a higher price of a good by buying more of the substitute goods and less of the relatively more expensive good. In addition, goods or services that are considered necessities tend to have less elastic (more inelastic) demand, whereas goods or services that are considered luxuries have more elastic (less inelastic) demands.

Explain why the demand for the good or service provided by the organization you work for is elastic or inelastic. How does this influence pricing decisions?
Provide examples on how the availability of close substitutes affects price elasticity of demand.
Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

Please answer ALL bulletins and place the answers under the correct bulletin.

If the percentage change in quantity demanded is equal to the percentage change in price for small changes in price and quantity near the point on a linear demand function graph corresponding to the price of $15 per unit at which the quantity demanded is 1,000 units, what is the effect on total consumer expenditure on the good if there is a relatively large increase in price to above $15?

a) Total consumer spending on the good will increase

b) Total consumer spending on the good will decrease

c) Total consumer expenditure will be unchanged.

d) One cannot tell without knowing more information

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ECON 200 Lecture Notes - Lecture 10: Demand Curve, Normal Good, Marginal Cost

ECON 200 Full Course Notes

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