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ECN 104 Chapter Notes - Chapter 6: Complementary Good, The Immediate, Economic Equilibrium

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emeraldcrab631
24 Feb 2017
School
Ryerson University
Department
Economics
Course
ECN 104
Professor
Hakan Toksoy

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Document Summary

Price elasticity of demand: a measure of the responsiveness of buyers to a change in the price of a product or resource. Measure the degree to which demand is elastic or inelastic. Calculate the percentage change in quantity demanded between two points. Calculate the percentage change in price between two points. Use midpoint formula for calculating elasticity; average two prices and two quantities as reference points for computing percentages. Midpoint formula: a method for calculating price elasticity of demand or price elasticity of supply that averages the two prices and two quantities as the reference points for competing percent ages. Using absolute changes, choice of units will affect impression of buyer responsiveness: can falsely lead us into believe that demand is elastic when it is not. Percentages correctly compares consumer responsiveness to changes in prices of different products: we can sensibly compare consumer responsiveness to price increases by using common percentage increase in price.

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Related Questions

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?

In this question, we will determine the price elasticity of demand using both the coefficient of elasticity and the total revenue test.

Use the demand schedule in the table below to answer the following questions.

Quantity Demand Price
10 200
20 150
30 100
40 50
50 25

 

 

 

 

a) Calculate the total revenue for each row in the demand schedule. indicate whether total revenue increases or decreases between each row int eh demand schedule. use the total revenue test to classify each price/quantity change as elastic, inelastic, or uni-elastic.

b) calculate the own price-elasticity coefficient for each row in the demand schedule. use the coefficients you calculate to classify each price/quantity change as elastic, inelastic, unit elastic.

in your answer it will be useful to recall that the midpoint formula for percentage change is:

%change midpoint = (final - initial) / ((finial + initial)/2)

and own price elasticity can be calculated by using the formula

Ed= (percentage change in quantity demand of product x) / (percentage change the in the price of product x)

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 consumers’ 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.