L11 Econ 1011 Lecture 5: Elasticity

37 views5 pages

oliveleopard31

18 Aug 2016

School

WUSTL

Department

University College - Economics

Course

L11 Econ 1011

Professor

Bandyopadhyay Sudeshna

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Elastic: the demand for a good is elastic with respect to price if its price elasticity of demand is greater than 1. Inelastic: the demand for a good is inelastic with respect to price if its price elasticity of demand is less than 1. Unit elastic: the demand for a good is unit elastic with respect to price if its price elasticity of demand equals 1. Time: substitution of one product or service for another takes time. !1: the price elasticity of demand for any good or service will be higher in the long run than in the short run. Price elasticity at point a: ea = p/q x 1/slope. If two demand curves have a point in common, the steeper curve must be the less price-elastic of the two with respect to price at that point. Must be less than one at any point below the midpoint. Must be greater than one for any point above the midpoint.

Related Questions

If the percentage change in the quantity demanded of a good is less than the percentage change in price, the price elasticity of demand is:

A) Elastic

B) Inelastic

C) Perfectly inelastic

D) Unitary elastic

byzantiummole828

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.

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

L11 Econ 1011 Lecture 5: Elasticity

Document Summary

Get access

Related Documents

L11 Econ 1011 Lecture 4: Chapter 4

L11 Econ 1011 Chapter Notes - Chapter 3: Normal Good, Overnight Delivery, Economic Surplus

L11 Econ 1011 Lecture Notes - Lecture 3: Reservation Price, Economic Surplus, Marginal Utility

Related Questions