ECON 1050 Chapter Notes - Chapter 4: Normal Good, Negative Number, Inferior Good

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rubyhamster299

14 Apr 2017

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Price elasticity of demand- a unit free of measure of the responsiveness of the quantity demanded of a good to a change in price when all influences on buying plans remain the same. The slope of the two-demand curve depends on the units in which we measure price and quantity. Original price is 20. 5 new price is 19. 5 so average price is 20, and price change is a dollar. The original demand is 9 pizzas and it grew to 11, the average is 10 and the change is 2. Average price and quantity: we use average price and quantity because it gives us the most precise measurement of elasticity, the midpoint between the two points. Example if we didn"t use average in textbook top of pg 86. The price elasticity will be a negative number. Inelastic and elastic demand: fig 4. 3 covers the entire range of possible elasticity"s of demand.

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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.

11.The concept of total surplus is a useful but imperfect measure of:

A. wellbeing

B. comparative advantage

C. market power

D. price elasticity of demand

12.Assume that burgers and pizzas are substitute goods in consumption only. When the burger price increases we will see which of the following changes in the pizza market?

A. An increase in demand and an increase in supply

B. An increase in demand and an increase in the quantity supplied

C. An increase in the quantity demanded and an increase in supply

D. An increase in the quantity demanded and no change to the quantity supplied

13.If the current price in a competitive market is $10 and the minimum of the the average total cost curve for a representative firm is $12, what is likely to occur to the market supply curve and the market price?

A. Supply will decrease and the price will rise

B. Supply will decrease and the price will fall

C. Supply will increase and the price will rise

D. Supply will increase and the price will fall

coralhyena258

ECON 1050 Chapter Notes - Chapter 4: Normal Good, Negative Number, Inferior Good

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