ECN203

Identify what own price elasticity of demand measures

A measure of responsiveness of the quantity demand of a change in price of one good

Critique the following logic: If you charge more you make more revenue.

not accurate enough; consider about elastic/inelastic demand of product

inelastic demand

not very responsive

Describe the relationship between own price elasticity of demand and advertising

affect price elasticity through advertising ( imply its competitor's product is not a good substitute "brand loyalty")

elastic demand

responsive; change significantly

Identify four factors that determine the own price elasticity of a good or service. Explain each.

1.necessity and luxury; 2.number and quality of available substitute; 3.time frame; 4. price relative to wealth and income

Using a simple version of our decision rule as a point of departure, demonstrate why a product demand line slopes down

As price goes up, and MU stays the same, MU/p will be out of balance(not maximize utility). in order to let "MU" be bigger, we need to decrease the demand quantility

Write out and explain the equation economists use to represent the measure of own price elasticity.

E=|%quantity change/ %own price change| E bigger than 1- elastic demand E =1 unitary elasticity E=0 "have to have it"

Give examples of elastic and inelastic demand. Explain

McDonald's & Burger king lifesaving drugs

Ceteris paribus, identify which kind of good would exhibit a more inelastic: a necessity or a luxury. Explain. Give and explain an example.

Necessity: goods that price does not matter. choose necessity(e.g. lifesaving drugs)

Explain how the time frame affects own price elasticity. Give and explain an example.

Short run/long run; how price changes in gasoline affects people's life

Explain how the number and quality of substitutes affects own price elasticity. Give and explain an example

The better the substitute is , the easier that people may switch away when the price goes up. S and O are both good lifesaving drugs, when price of S goes up, people may more willing to switch to O

Describe the relationship between own price elasticity and total revenue as price changes

Total revenue= price*quantity when selling sth, the costs are set, and the profits are depend on our revenue. Inelastic demand of our product--raise price--less demand change --get more revenue

Identify the own price elasticity of demand that suppliers in a perfectly competitive market face.

cannot keep long to distinguish their products or keep competitors away

Identify and explain a public policy case (other than the cases cited) representing how a government agency might use own price elasticity information.

cigarettes?

Interpret the expression "price is no object" in economic terms.

people pay whatever they need to pay. demand is perfectly inelastic

Identify which case, perfectly elastic or perfectly inelastic demand, you would wish for if you were going to sell a product - assume ceteris paribus. Explain

perfectly inelastic; rice changes, but Q doesn't change at all

Show graphically and describe the case of perfectly inelastic demand

price changes, but Q doesn't change at all

Explain how the price of the good relative to a person's wealth and income affects own price elasticity. Given and explain an example.

the lower the price relative to someone's wealth and income, the less responsive that the person will be to a change in price(more inelastic the demand would be); price change in cars---- me and Bill Gates