54 Questions
What is the own price elasticity of demand when the price of laptops is $15 and the quantity demanded is 50?
Using the formula: ΔQ / Q / (ΔP / P), we can calculate the own price elasticity of demand. Given the data, we have ΔQ = 50 - 60 = -10, Q = 50, ΔP = 15 - 10 = 5, P = 10. Plugging in the values, we get elasticity = (-10 / 50) / (5 / 10) = -2.
How does an increase in the price of juice affect the demand for coffee products in a grocery store?
The demand for coffee products will likely increase, as consumers may substitute coffee for juice due to the higher price of juice.
What is the formula for the own price elasticity of demand?
The formula is: ε = (ΔQ / Q) / (ΔP / P)
What is the income elasticity of demand, and how is it calculated?
Income elasticity of demand is a measure of how responsive the quantity demanded is to a change in consumer income. It is calculated as: ε = (ΔQ / Q) / (ΔI / I)
What is the equation for the linear demand function in the problem, and what is the elasticity of demand at a price of $20?
The linear demand function is Qx = 80 - 2Px. To find the elasticity of demand at a price of $20, we need to calculate the slope of the demand curve and the quantity demanded at that price.
What are the three main factors that affect the own price elasticity of demand?
The three main factors are: availability of substitutes, time, and expenditure share.
What is cross-price elasticity, and how is it different from own price elasticity?
Cross-price elasticity measures the responsiveness of the demand for a good to changes in the price of a related good. It differs from own price elasticity, which measures the responsiveness to changes in the price of the good itself.
What is the measure of the responsiveness of one variable to changes in another variable?
The percentage change in one variable that arises due to a given percentage change in another variable.
What is the own price elasticity of demand?
The percentage change in quantity demanded divided by the percentage change in the price of the good.
How does the coefficient of the linear demand function Qx = 80 - 2Px relate to the own price elasticity of demand?
The coefficient -2 represents the slope of the demand curve, which is related to the own price elasticity of demand.
What are the two aspects of elasticity that are important?
Its sign and whether it is greater or less than absolute value.
What is the condition for elastic demand?
The absolute value of the own price elasticity is greater than 1.
What is the characteristic of a perfectly elastic demand?
The own price elasticity is infinite in absolute value, and the demand curve is horizontal.
What is the condition for unitary elastic demand?
The absolute value of the own price elasticity is equal to 1.
What is the difference between elasticity of demand and price elasticity of demand?
Elasticity of demand is a broader concept that measures responsiveness to changes in any variable, while price elasticity of demand is a specific type of elasticity that measures responsiveness to changes in price.
How is income elasticity of demand different from price elasticity of demand?
Income elasticity of demand measures the responsiveness of quantity demanded to changes in income, while price elasticity of demand measures the responsiveness to changes in price.
If the income elasticity of demand for organic potatoes is 2.26, what does this imply about the change in demand for organic potatoes when consumer incomes fall by 10 percent over the next three years?
The demand for organic potatoes will decrease by 22.6%.
What is the elasticity of demand for raincoats with respect to the daily amount of rainfall, given the demand function ln Qx d = 10 − 1.2 ln Px + 3 ln R − 2 ln Ay?
The elasticity of demand with respect to rainfall is 3.
If the demand function for Invigorated PED shoes is Qx d = 100 − 3Px + 4Py −.01M + 2Ax, what is the own price elasticity of demand when Px = 25, Py = 35, Ax = 50, and M = 20,000?
The own price elasticity of demand is -3.
What is the cross-price elasticity of demand for Invigorated PED shoes with respect to good Y, given the demand function Qx d = 100 − 3Px + 4Py −.01M + 2Ax?
The cross-price elasticity of demand is 4.
If the demand function for raincoats is ln Qx d = 10 − 1.2 ln Px + 3 ln R − 2 ln Ay, what would be the impact on demand of a 10 percent increase in the daily amount of rainfall?
The demand would increase by 30%.
What is the income elasticity of demand for Invigorated PED shoes, given the demand function Qx d = 100 − 3Px + 4Py −.01M + 2Ax?
The income elasticity of demand is -.01.
If the income elasticity of demand for organic potatoes is 2.26, what would be the impact on demand of a 5 percent increase in consumer incomes?
The demand would increase by 11.3%.
What is the elasticity of demand for Invigorated PED shoes with respect to advertising, given the demand function Qx d = 100 − 3Px + 4Py −.01M + 2Ax?
The elasticity of demand with respect to advertising is 2.
If the income elasticity of demand for a product is 2.5, what would be the percentage change in demand if consumer incomes increase by 8%?
20%
What would be the impact on demand for raincoats if the daily amount of rainfall decreases by 5% and the elasticity of demand with respect to rainfall is 3?
15% decrease
If the own price elasticity of demand for a product is -2, what would be the percentage change in demand if the price increases by 10%?
20% decrease
What would be the impact on demand for Invigorated PED shoes if the price of good Y increases by 10% and the cross-price elasticity of demand is 1.5?
15% increase
If the income elasticity of demand for a product is 1.8, what would be the percentage change in demand if consumer incomes decrease by 12%?
-21.6%
What would be the impact on demand for raincoats if the amount of advertising on good Y increases by 15% and the elasticity of demand with respect to advertising is 2?
30% increase
If the own price elasticity of demand for a product is -3, what would be the percentage change in demand if the price decreases by 12%?
36% increase
What would be the impact on demand for Invigorated PED shoes if average consumer income increases by 15% and the income elasticity of demand is 1.2?
18% increase
If the cross-price elasticity of demand for Invigorated PED shoes with respect to good Y is 2, what would be the percentage change in demand if the price of good Y decreases by 10%?
-20%
What would be the impact on demand for organic potatoes if consumer incomes fall by 12% and the income elasticity of demand is 2.26?
-27.12%
What is the percentage change in the quantity demanded of laptops when the price increases from $10 to $20, given the demand function Qx d = 80 − 2Px?
From the demand function, we get Q1 = 60 and Q2 = 40. The percentage change is (40 - 60) / 60 = -33.33%. So, the quantity demanded decreases by approximately 33.33%.
How does the availability of substitutes affect the own price elasticity of demand for a good?
The availability of substitutes increases the own price elasticity of demand for a good. With more substitutes available, consumers are more responsive to price changes.
What is the difference between the own price elasticity of demand and the cross-price elasticity of demand?
Own price elasticity of demand measures responsiveness to changes in the good's own price, while cross-price elasticity measures responsiveness to changes in the price of a related good.
How does an increase in consumer income affect the demand for a good with an income elasticity of demand greater than 1?
If the income elasticity of demand is greater than 1, an increase in consumer income will lead to a more than proportionate increase in the demand for the good.
What is the relationship between the expenditure share and the own price elasticity of demand?
A good with a small expenditure share tends to have a higher own price elasticity of demand.
How does an increase in the price of a related good affect the demand for a good, according to the concept of cross-price elasticity?
An increase in the price of a related good can either increase or decrease the demand for the original good, depending on whether the goods are substitutes or complements.
What is the condition for a good to have a unitary elastic demand?
A good has a unitary elastic demand when the elasticity of demand is equal to 1, meaning that the percentage change in quantity demanded is equal to the percentage change in price.
How does the time period affect the own price elasticity of demand for a good?
The own price elasticity of demand tends to be higher in the long run compared to the short run, as consumers have more time to adjust their consumption patterns.
What is the impact on demand when the price of a complementary good decreases?
A decrease in the price of a complementary good will increase the demand for the original good.
What is the own price elasticity of demand for laptops when the price is $15 and the quantity demanded is 50, given the demand function Qx d = 80 − 2Px?
First, find the quantity demanded at a price of $15, which is 50. Then, calculate the elasticity: (ΔQ / Q) / (ΔP / P) = (-10 / 50) / (5 / 15) = -2.
What is the significance of the sign of elasticity in demand analysis?
The sign of elasticity indicates the direction of change in the quantity demanded in response to a change in the price of the good.
What is the difference between elastic and inelastic demand, and what are the implications for firms?
Elastic demand means that the percentage change in quantity demanded is greater than the percentage change in price, whereas inelastic demand means that the percentage change in quantity demanded is less than the percentage change in price. Elastic demand implies that firms can increase revenue by decreasing price, while inelastic demand implies that firms can increase revenue by increasing price.
What is the relationship between the own price elasticity of demand and the slope of the demand curve?
The own price elasticity of demand is inversely related to the slope of the demand curve. A flatter demand curve indicates a more elastic demand, while a steeper demand curve indicates a less elastic demand.
What is the implication of a unitary elastic demand on the revenue of a firm?
A unitary elastic demand means that the revenue of a firm remains constant, regardless of changes in price or quantity demanded.
What is the difference between perfectly elastic demand and perfectly inelastic demand, and what are the implications for consumer behavior?
Perfectly elastic demand means that consumers are extremely responsive to price changes, whereas perfectly inelastic demand means that consumers are completely unresponsive to price changes. Perfectly elastic demand implies that consumers are highly sensitive to price changes, while perfectly inelastic demand implies that consumers are completely insensitive to price changes.
What is the significance of the absolute value of elasticity in demand analysis?
The absolute value of elasticity determines the degree of responsiveness of the quantity demanded to changes in price. An absolute value greater than 1 indicates elastic demand, while an absolute value less than 1 indicates inelastic demand.
What is the relationship between the own price elasticity of demand and the revenue of a firm?
An elastic demand implies that a decrease in price leads to an increase in revenue, while an inelastic demand implies that a decrease in price leads to a decrease in revenue.
What is the implication of a change in the own price elasticity of demand on the demand curve?
A change in the own price elasticity of demand implies a shift in the demand curve, with an increase in elasticity leading to a flatter demand curve and a decrease in elasticity leading to a steeper demand curve.
What is the difference between the own price elasticity of demand and the cross-price elasticity of demand?
The own price elasticity of demand measures the responsiveness of the quantity demanded to changes in the price of the good itself, while the cross-price elasticity of demand measures the responsiveness of the quantity demanded to changes in the price of another good.
What is the significance of understanding the elasticity concept in demand analysis?
Understanding the elasticity concept is essential in determining the responsiveness of the quantity demanded to changes in price, income, and other factors, which is crucial in making informed decisions about pricing, production, and marketing strategies.
Study Notes
Elasticity Concept
- Elasticity is a measure of the responsiveness of one variable to changes in another variable.
- It represents the percentage change in one variable due to a given percentage change in another variable.
Types of Elasticity
- Own Price Elasticity of Demand: measures the responsiveness of the quantity demanded of a good to a change in the price of that good.
- Cross Price Elasticity: measures the responsiveness of the demand for a good to changes in the price of a related good.
- Income Elasticity: measures the responsiveness of the demand for a good to changes in consumer income.
Elasticity Types by Absolute Value
- Elastic demand: absolute value of own price elasticity is greater than 1.
- Inelastic demand: absolute value of own price elasticity is less than 1.
- Unitary elastic demand: absolute value of own price elasticity is equal to 1.
- Perfectly elastic demand: own price elasticity is infinite in absolute value (demand curve is horizontal).
- Perfectly inelastic demand: own price elasticity is zero (demand curve is vertical).
Factors Affecting Own Price Elasticity
- Available substitutes
- Time
- Expenditure share
Applications of Elasticity
- Organic potatoes: with income elasticity of demand of 2.26, a 10% decrease in consumer income would lead to a 22.6% decrease in demand.
- Raincoats: a 10% increase in daily rainfall would lead to an increase in demand.
- Invigorated PED shoes: own price elasticity, cross-price elasticity, and income elasticity can be calculated using the given demand function.
The Elasticity Concept
- Elasticity is a measure of the responsiveness of one variable to changes in another variable.
- It is the percentage change in one variable that arises due to a given percentage change in another variable.
Own Price Elasticity of Demand
- Own price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in the price of that good.
- It is the percentage change in quantity demanded divided by the percentage change in the price of the good.
Types of Demand Based on Elasticity
- Elastic demand: when the absolute value of the own price elasticity is greater than 1.
- Inelastic demand: when the absolute value of the own price elasticity is less than 1.
- Unitary elastic demand: when the absolute value of the own price elasticity is equal to 1.
- Perfectly elastic demand: when the own price elasticity is infinite in absolute value, and the demand curve is horizontal.
- Perfectly inelastic demand: when the own price elasticity is zero, and the demand curve is vertical.
Factors Affecting Own Price Elasticity
- Availability of substitutes
- Time
- Expenditure share
Cross Price Elasticity
- Cross price elasticity is a measure of the responsiveness of the demand for a good to changes in the price of a related good.
- It is the percentage change in the quantity demanded of one good divided by the percentage change in the price of a related good.
Income Elasticity
- Income elasticity is a measure of the responsiveness of the demand for a good to changes in consumer income.
- It is the percentage change in quantity demanded divided by the percentage change in income.
Elasticities for Linear Demand Functions
- The elasticities for linear demand functions are:
Demonstration Problems
- Example of own price elasticity: Total Revenue and Elasticity (Qx d = 80 − 2Px)
- Example of cross price elasticity: The effect of a 20% increase in the price of juice on coffee sales.
- Example of income elasticity: The effect of a 10% decrease in consumer income on the demand for organic potatoes.
- Example of estimating elasticities from linear demand functions.
The concept of elasticity in economics, including its definition, types, and application in measuring responsiveness of variables.
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