ECON 1 Lecture Notes - Lecture 7: Price Ceiling, Normal Good, Price Floor

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goldsheep474

15 Oct 2016

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If demand is elastic then price elasticity of demand > 1. % change in q > % change in p. The fall in revenue from lower q is greater than the increase in revenue from higher p, so revenue falls. Demand for your websites: (any elasticity >1 would suffice) If demand is inelastic, then the price elasticity of demand < 1. % change in q < % change in p. The fall in revenue from lower q is smaller than the increase in revenue from higher p, so revenue rises. In our example, suppose that q only falls to 10 (instead of 8) when you raise your price to . Demand for your websites: (any elasticity <1 would suffice) One side effect of illegal drug use is crime: users often turn to crime to finance their habit. We examine two policies designed to reduce illegal drug use and see what effects they have on drug-related crime.

Related Questions

5. The demand curve for a product is given by Qdx = 1,000 - 2Px + .02Pz where Pz = $400. (Hint: If you're not comfortable with the calculus alternatives, compute Q at the given prices, then again with a 1% increase in price. Then figure percentage change in Q over the percentage change in P, %Q/%P).

a. What is the own-price elasticity of demand when Px = $154? Is the demand elastic or inelastic? What would happen to the firm's revenue if it decided to charge a price below $154?

b. What is the own-price elasticity of demand when Px = $354? Is the demand elastic or inelastic? What would happen to the firm's revenue if it decided to charge a price below $354?

c. What is the cross-price elasticity of demand between good X and good Z when Px = $154? Are good X and good Z substitutes are complements?

byzantiumimpala385

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%?