ADM 1300 Chapter Notes - Chapter 5: Kilogram

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lavendercicada601

14 Jul 2014

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Elasticity a measure of the responsiveness of qd or qs to one of it"s determinants: price elasticity of demand. **when elasticity = 0, demand is inelastic and is a vertical line** **when elasticity is infinite, demand is elastic and is a horizontal line*: total revenue. P> 1, p increases and tr decreases (vice-versa) -------------> demand is elastic. P= 1, p increases (decreases) and tr remains constant elastic. P< 1, p increases and tr increases (vice-versa) -------------> demand is inelastic. At points with a low price & a high quantity, demand is inelastic. At points with a high price & a low quantity, demand is elastic. A measure of how much qd of a good responds to a change in consumer"s income. Computed as the % change in quantity demanded divided by the % change in income. A measure of how much the qd of one good responds to a change in price of another good.

Related Questions

Explain why the demand for the good or service provided by a firm is elastic or inelastic. How does the elastic or inelastic demand influence pricing decisions by the firm to maximize profit? What are the impacts of elastic demand and inelastic demand on total revenue?

Provide examples of how the availability of close substitutes affects the price elasticity of demand for a good or service.

Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

salmonlouse248

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.

Consider some determinants of the price elasticity of demand:

The availability of close substitutes
Whether the good is a necessity or a luxury
How broadly you define the market?
The time horizon being considered

A good without any close substitutes is likely to have relatively ___________(inelastic/elastic) demand since consumers cannot easily switch to a substitute good if the price of the good rises.

A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand?

A. Diamond necklace

B. A heart value for heart attack victims

The price elasticity of demand for good also depends on how you define the good.

Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between.

Categories	Most Elastic	In Between	Least Elastic
Food
Red Bell Peppers
Vegetables

The price elasticity of demand is also affected by the given time horizon.

If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public transportation. Therefore, the demand for gasoline is__________ (less, more, no more, nor less) elastic in the short run than in the long run.

lemonbutterfly300

ADM 1300 Chapter Notes - Chapter 5: Kilogram

ADM 1300 Full Course Notes

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