ECON-1010 Chapter : 6-Elasticity

10 views4 pages

mphyde

12 May 2022

School

Vanderbilt University

Department

Economics

Course

ECON-1010

Professor

Hojjatallah Ghandi

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

ECON-1010 Full Course Notes

Verified Note

3 documents

Document Summary

Inelastic demand does not mean that quantity demanded is totally insensitive to changes in price. Elastic demand: if a change in price causes a relatively large change in quantity demanded. % change = [(ending value - beginning value) / beginning value] x 100. Elasticity of demand = % change in quantity / % change in price. Inelastic demand: if a change in price causes only a small change in quantity demanded. If % change in qd is less than % change in price. The greater the # of substitutes, the greater the elasticity. Whether or not a good is a necessity. If a good is a necessity, it has few or no substitutes, so very little elasticity. If amount spent on a good makes up a large part of one"s income, then that good will be more elastic, compared to a good that one spends little money on.

Related Questions

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

Ch. 6: Simple Pricing

a. define the Law of Demand?

b. Explain the distinction between a change in demand and a change in quantity demanded?

c. create a demand curve from a simple demand schedule in Table 6.2?

d. determine the calculated values in a table such as Table 6.4?

e. Can you apply your understanding of Chapter 4s marginal analysis to pricing decisions in a price-making (versus price-taking) firm?

f. Can you explain in words what Own Price Elasticity, Cross-Price Elasticity, and Income Elasticity mean?

g. Given specific values for Own-Price Elasticity of Demand, can you determine whether demand for the good is elastic, inelastic, or unit elastic?

h. Given specific values for Cross-Price Elasticity, can you determine whether the two goods are substitutes or complements?

i. Given specific values for Income Elasticity, can you determine whether the good is a normal or inferior good?

j. Can you calculate each of these elasticities, such as in the homework?

k. Identify relatively elastic and inelastic demand curves?

l. List factors that may affect demand elasticity.

m. Indicate whether total revenue will increase or decrease as a result of a price change, depending on the demand elasticity?

The textbook used for this assignment is Managerial Economics, Froeb Chapters.

rubylouse898

ECON-1010 Chapter : 6-Elasticity

ECON-1010 Full Course Notes

Document Summary

Get access

Related Documents

ECON-1010 Chapter Notes -Ceteris Paribus, Inverse Demand Function, Demand Curve

ECON-1010 Chapter Notes - Chapter 10: Aggregate Demand, Aggregate Supply, Graphical Model

ECON-1010 Chapter Notes - Chapter 5: Maximum Wage, Price Ceiling, Economic Equilibrium

Related Questions