ECON-1006EL Chapter 4: Elasticity

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rubygoose773

23 May 2018

School

Laurentian

Department

Economics / Science Èconomique

Course

ECON-1006EL

Professor

Eastman

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Chapter 4: Elasticity

Definitions

Price Elasticity of

Demand (µ)

A measure of responsiveness of quantity demanded to a change in the

commodity’s own price

Inelastic Demand

Following a given percentage change in price, there is a smaller percentage

change in quantity demanded; elasticity less than 1

Elastic Demand

Following a given change in price, there is a greater percentage change in quantity

demanded; elasticity greater than 1

Price Elasticity of

Supply (µs)

A measure of responsiveness of quantity supplied to change in the product’s own

price

Excise Tax

A tax on the sale of a particular commodity

Tax Incidence

The location of the burden of a tax – that is, the identity of the ultimate bearer of

the tax

Income Elasticity

of Demand(µY)

A measure of the responsiveness of quantity demanded to a change in income

Normal Good

A good for which quantity demanded rises as income rises – its income elasticity

is positive

Inferior Good

A good for which quantity demanded falls as income rises – its income elasticity

is negative

Necessities

Products for which the income elasticity of demand is positive but less than 1

Luxuries

Products for which the income elasticity of demand is positive and greater than 1

Cross Elasticity of

Demand (µXY)

A measure in the responsiveness of the quantity of one commodity demanded to

changes in the price of another commodity

Equations

Price Elasticity of Demand

  



 

 





 



Total Expenditure

    

Price Elasticity of Supply





Income Elasticity of Demand





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Document Summary

A measure of responsiveness of quantity demanded to a change in the commodity"s own price. Following a given percentage change in price, there is a smaller percentage change in quantity demanded; elasticity less than 1. Following a given change in price, there is a greater percentage change in quantity demanded; elasticity greater than 1. A measure of responsiveness of quantity supplied to change in the product"s own price. A tax on the sale of a particular commodity. The location of the burden of a tax that is, the identity of the ultimate bearer of the tax. A measure of the responsiveness of quantity demanded to a change in income. A good for which quantity demanded rises as income rises its income elasticity is positive. A good for which quantity demanded falls as income rises its income elasticity is negative. Products for which the income elasticity of demand is positive but less than 1.

Related Questions

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.

a) What is the advantage of using the price elasticity rather than the slope of the demand curve or its inverse to measure the responsiveness in the quantity demanded of a commodity to a change in its price?

b) Why and how is the formula for arc price elasticity of demand different from the formula for point price elasticity of demand?

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ECON-1006EL Chapter 4: Elasticity

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