EC120 Study Guide - Final Guide: Average Variable Cost, Average Cost, Marginal Revenue

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mauveraccoon115

31 Jul 2013

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EC120 Full Course Notes

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Law of demand: other things equal, higher the price of a good, smaller the quantity demanded. Law of supply: other things equal, quantity supplied of good rises when price of good rises. Price elasticity of demand: measure of how much quantity demanded of a good responds to a change in price of that good (% change of quantity demanded / % change of price - always positive) Inelastic demand - price elasticity of demand < 1. Perfectly inelastic demand - price elasticity of demand = 0 (i) Elastic demand - price elasticity of demand > 1. Perfectly elastic demand - price elasticity of demand = infinity (e) Unit elastic demand - price elasticity of demand = 1. Inelastic demand - price and total revenue move in same direction. Elastic demand - price and total revenue move in opposite directions. Unit elastic demand - total revenue remains constant when price changes. Inelastic demand - fall in price decreases total expenditure.

Related Questions

1. An increase in the price of a good will

a. increase quantity demanded

b. increase demand

c. decrease demand

d. decrease quantity demanded

2. An increase in the price of good will

a. decrease quantity supplied

b. increase quantity supplied

c. decrease supply

d. increase supply

3. An increase in price causes an increase in total revenue when demand is

a. inelastic

b. elastic

c. unit elastic

d. all of the above

4. Which of the following could be the price elasticity of demand for a good for which a price increase would decrease revenue?

a. 1.0

b. 0.6

c. 2.6

d. 0.9

5. Other things equal, when the price of good falls, the

a. quantity supplied of good increases

b. demand increases

c. supply decreases

d. quantity supplied of the good decreases

brownantelope470

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.

EC120 Study Guide - Final Guide: Average Variable Cost, Average Cost, Marginal Revenue

EC120 Full Course Notes

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