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ECON 208 Chapter Notes - Chapter 4: Demand Curve, Longrun, Tax Incidence

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School
McGill University
Department
Economics
Course
ECON 208
Professor
Alex Hale

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ECON 208 Full Course Notes
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ECON 208 Full Course Notes
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Document Summary

Elasticity ( ) = (cid:3043)(cid:3032)(cid:3045)(cid:3030)(cid:3032)(cid:3041)(cid:3047)(cid:3034)(cid:3032) (cid:3030) (cid:3041)(cid:3034)(cid:3032) (cid:3041) (cid:3044)(cid:3048)(cid:3041)(cid:3047)(cid:3047) (cid:3031)(cid:3032)(cid:3040)(cid:3041)(cid:3031)(cid:3032)(cid:3031) (cid:1868)(cid:1857)(cid:1870)(cid:1855)(cid:1857)(cid:1866)(cid:1872)(cid:1859)(cid:1857) (cid:1855) (cid:1866)(cid:1859)(cid:1857) (cid:1866) (cid:1868)(cid:1870)(cid:1855)(cid:1857) = (cid:3266)(cid:3266) : = (cid:3266)(cid:3117) (cid:3266)(cid:3116) (cid:3266) (cid:3117) (cid:3265)(cid:3116, notice that (cid:1868)(cid:3049)(cid:3034)=(cid:3043)(cid:3117)+(cid:3043)(cid:3118)(cid:2870, = (cid:3266)(cid:3117) (cid:3266)(cid:3116) (cid:3266)(cid:3117)+(cid:3266)(cid:3116) (cid:3117) (cid:3116) (cid:3117)+(cid:3116) Allows us to use the same process for linear and non-linear demand curves. The elasticity is not the same at each point on the curve: this is not the same as judging the elasticity of a curve by its slope the slope is a relative judgement. Three demand curves that have constant elasticity the li(cid:374)ear de(cid:373)a(cid:374)d (cid:272)ur(cid:448)e a(cid:271)o(cid:448)e does(cid:374)"t ha(cid:448)e a (cid:272)o(cid:374)sta(cid:374)t elasticity. D1 = perfectly inelastic at q0 (=(cid:882)) D1 = perfectly elastic at p0 (= ) decrease in q at all points on the curve (=(cid:883)(cid:4667) D1 = unit elastic: a given % increase in p induces an equal % Slope is constant -> constant relation of changes in q and p along the curve.

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Related Questions

1. The concept of price elasticity of demand measures:

a. the slope of the demand curve.

b. the number of buyers in a market.

c. the extent to which the demand curve shifts as the result of a price decline.

d. the sensitiveness of quantities demanded to price changes.

2. When the percentage change in price is less than the resulting percentage change in quantity demanded:

a. demand is elastic.

b. demand is inelastic.

c. demand is unit elastic.

d. none of the above.

3. The elasticity of demand:

a. will be the same at each price-quantity combination on a stable demand curve.

b. tends to be elastic in high-price ranges and inelastic in low-price ranges.

c. tends to be inelastic in high-price ranges and elastic in low-price ranges.

d. is infinitely large for a perfectly inelastic demand curve.

4. Suppose that as the price of Y falls from $2.00 to $1.80 the quantity of Y demanded increases from 110 to 121. It can be concluded that the price elasticity of demand is: _______.

5. Total revenue rises as the price of a good increases if price elasticity of demand is:

a. unitary elastic

b. perfectly inelastic.

6. The demand for such products as salt, bread, and electricity tend to be:

a. relatively price elastic.

b. relatively price inelastic.

c. of unit price elasticity.

d. perfectly price elastic.


47. When a public transit system (such as a subway or bus line)raises its fares, it may experience an increase in total revenue.This suggests that demand is:
A) unstable.
B) price inelastic.
C) price elastic.
D) unit price elastic.
45. If the quantity demanded of agricultural output is veryunresponsive to a fall in price, the demand for agricultural outputis:
A) price elastic.
B) price inelastic.
C) positively sloped.
D) horizontal.
48. A constant price elasticity of demand curve is one whose:
A) slope is the same at every point on the curve.
B) price elasticity of demand is the same at every point on thecurve.
C) quantity is the same at every point on the curve.
D) price elasticity of demand and slope are the same at every pointon the curve.

49. Whenever supply increases, the resulting market price willalways be lower except:
A) when demand is perfectly price elastic (when the demand curve ishorizontal).
B) when demand is completely price inelastic (when the demand curveis vertical).
C) when supply is perfectly price inelastic (when the supply curveis vertical).
D) in the case of demand having unit price elasticitythroughout.

50. A demand curve that is perfectly inelastic:
A) will be vertical.
B) will be horizontal.
C) will be upward sloping.
D) has an elasticity equal to 1 everywhere on the curve.

From the scenario for Katrina’s Candies, examine the procedure Herb will use to estimate the "demand model" for this product and comment on the expected price elasticity, income elasticity, and cross price elasticity of demand. That is, do you expect demand to be price elastic or inelastic? Will the income elasticity suggest Katrina Candies is a luxury or a necessary good? And, is there likely to be a strong cross price elasticity with the other products that Herb included in his demand model? Explain your answers. What can you determine about consumer demand for a product whose estimated demand elasticities are as follows: Price Elasticity of demand is -0.85 Income Elasticity of demand is 2.5 Cross Price Elasticity of demand with this product and your product is -2 I would like you to think about this simple formula for predicting the change in total revenue when there is a given percentage change in price. Using the example above, if ED (price elasticity of demand) is -.85, then a 10% increase in price will cause the quantity demanded to fall by 8.5%, (-8.5% / 10% = -.85). The Formula for Predicting % Changes in Total Revenue is: %ΔTR = %ΔQ + %ΔP where TR = Total Revenue, Q is Quantity Demanded and P = price. Using this formula, what would be the % Δ in TR if ED is -.85 and the %ΔP is 10%?