ECON 2200 Chapter Notes - Chapter Appendix: Aggregate Demand, Aggregate Supply, Competitive Equilibrium

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orchidraven224

27 Mar 2020

School

University of Georgia

Department

Economics

Course

ECON 2200

Professor

Rudbeck

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Document Summary

If buyers are price sensitive, economists say that demand for a good is elastic. Higher the share of income spent on a good or service. A good"s price elasticity of demand equals the percent change in quantity demanded for a good divided by the percent change in the price of a good. Monopoly one firm that sells a unique good and can set its price. Charges on price for its good to all customers one-price monopoly. Monopoly level of output is less than the perfectly competitive equilibrium and the monopoly price is higher than the competition price. Monopolies increase profit by decreasing production and raising price. The price level is the average level of prices in the economy. Aggregate demand (ad) may be seen as a willingness to pay for output . In long run equilibrium, all prices, wages, and expectations of inflation fully adjust curve.

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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.

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.

coffeeelephant81

Ch. 6: Simple Pricing

a. define the Law of Demand?

b. Explain the distinction between a change in demand and a change in quantity demanded?

c. create a demand curve from a simple demand schedule in Table 6.2?

d. determine the calculated values in a table such as Table 6.4?

e. Can you apply your understanding of Chapter 4s marginal analysis to pricing decisions in a price-making (versus price-taking) firm?

f. Can you explain in words what Own Price Elasticity, Cross-Price Elasticity, and Income Elasticity mean?

g. Given specific values for Own-Price Elasticity of Demand, can you determine whether demand for the good is elastic, inelastic, or unit elastic?

h. Given specific values for Cross-Price Elasticity, can you determine whether the two goods are substitutes or complements?

i. Given specific values for Income Elasticity, can you determine whether the good is a normal or inferior good?

j. Can you calculate each of these elasticities, such as in the homework?

k. Identify relatively elastic and inelastic demand curves?

l. List factors that may affect demand elasticity.

m. Indicate whether total revenue will increase or decrease as a result of a price change, depending on the demand elasticity?

The textbook used for this assignment is Managerial Economics, Froeb Chapters.

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ECON 2200 Chapter Notes - Chapter Appendix: Aggregate Demand, Aggregate Supply, Competitive Equilibrium

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