Econ(C5)
What do we call a good with an income elasticity less than 0?
A good with income elasticity less than zero is called an inferior good because as income rises, the quantity demanded declines.
Explain why the following might be true: a drought around the world raises the total revenue that farmers receive from the sale of grain but a drought only in Kansas reduce the total revenue that Kansas farmers receive.
A worldwide drought could increase the total revenue of farmers if the price elasticity of demand for grain is inelastic. The drought reduces the supply of grain, but if demand is inelastic, the reduction of supply causes a large increase in price. Total farm revenue would rise as a result. If there is only a drought in Kansas, Kansas' production is not a large enough proportion of the total farm product to have much impact on the price. As a result, price does not change (or changes by only a slight amount), while the output by Kansas farmers declines, thus reducing their income.
what's the measurement for a good to be elastic? if elasticity is 0, is demand perfectly inelastic?
An elasticity greater than one means that demand is elastic. When greater than one, the percentage change in quantity demanded exceeds the percentage change in price. When zero, demand is perfectly inelastic. There is no change in quantity demanded when there is a change in price.
Maria has decided to spend one third of her income in clothing. but she changed to spend quarter of her income on clothing, how does her demand curve change? what is her income elasticity and price elasticity?
Because Maria spends a smaller proportion of her income on clothing, then for any given price, her quantity demanded will be lower. Thus, her demand curve has shifted to the left. Because she will again spend a constant fraction of her income on clothing, her income and price elasticities of demand remain one.
Studies also find that teenagers have a higher price elasticity of demand than do adults. why might this be true?
Because teenagers do not have as much income as adults, they are likely to have a higher price elasticity of demand. Also, adults are more likely to be addicted to cigarettes, making it more difficult to reduce their quantity demanded in response to a higher price.
what happens to the Transit Anthony's revenue when the fare for the train rises?
Because the demand is inelastic, the Transit Authority's revenue rises when the fare rises.
Beethoven recordings or classical music recording. which is more elastic?
Beethoven recordings have more elastic demand than classical music recordings in general. they are a narrower market than classical music recordings, so it is easier to find close substitutes for them. If the price were to rise, people could substitute other classical recordings, like Mozart. But if the price of all classical recordings were to rise, substitution would be more difficult. Thus, the quantity demanded of classical recordings is less responsive to price than the quantity demanded of Beethoven recordings.
Maria has decided to spend one third of her income in clothing. what is her income elasticity of demand?
If Maria always spends one-third of her income on clothing, then her income elasticity of clothing demand is one, because maintaining her clothing expenditures as a constant fraction of her income means the percentage change in her quantity of clothing must equal her percentage change in income.
If a fixed quantity of a good is available and no more can be made, what is the price elasticity of supply?
If a fixed quantity of a good is available and no more can be made, the price elasticity of supply is zero. Regardless of the percentage change in price, there will be no change in the quantity supplied.
if demand is elastic , how will an increase in price change total revenue?
If demand is elastic, an increase in price reduces total revenue. With elastic demand, the quantity demanded falls by a greater percentage than the price rises. As a result, total revenue moves in the opposite direction as the price. Thus, if price rises, total revenue falls.
A price change cause the quantity demanded of a good to decrease by 30 % while the total revenue of that good increased by 15 %. is the demand curve elastic or inelastic?
If quantity demanded fell, price must have increased according to the law of demand. For a price increase to increase total revenue, the percentage increase in the price must be greater than the percentage decline in quantity demanded. Therefore, demand is inelastic.
A storm destroys half the fava bean crop. is this more likely to hurt fava bean farmers if the demand for fava is very elastic or inelastic?
It is more likely to hurt farmers if the demand is very elastic. Destruction causes the supply curve to shift to the left resulting in a higher price. When demand is very elastic, an increase in price leads to a decrease in total revenue because the decrease in quantity demanded outweighs the increase in price.
Maria has decided to spend one third of her income in clothing. what is her price elasticity of clothing demand?
Maria's price elasticity of clothing demand is also one, because every percentage point increase in the price of clothing would lead her to reduce her quantity purchased by the same percentage.
mystery novels or required textbooks. which is more elastic?
Mystery novels have more elastic demand than required textbooks because they have close substitutes and are a luxury good, while required textbooks are a necessity with no close substitutes. If the price of mystery novels were to rise, readers could substitute other types of novels, or buy fewer novels altogether. But if the price of required textbooks were to rise, students would have little choice but to pay the higher price. Thus, the quantity demanded of required textbooks is less responsive to price than the quantity demanded of mystery novels.
why the price elasticity of demand for heating oil depend on the time horizon?
Over time, consumers can make adjustments to their homes by purchasing alternative heat sources such as natural gas or electric furnaces. Thus, they can respond more easily to the change in the price of heating oil in the long run than in the short run.
Root beer or water, which is more elastic?
Root beer has more elastic demand than water. Root beer is a luxury with close substitutes, while water is a necessity with no close substitutes. If the price of water were to rise, consumers have little choice but to pay the higher price. But if the price of root beer were to rise, consumers could easily switch to other sodas or beverages. So the quantity demanded of root beer is more responsive to changes in price than the quantity demanded of water.
subway rides in the next six month or subway rides during the next five years? which is more elastic?
Subway rides during the next five years have more elastic demand than subway rides during the next six months. Goods have a more elastic demand over longer time horizons. If the fare for a subway ride was to rise temporarily, consumers could not switch to other forms of transportation without great expense or great inconvenience. But if the fare for a subway ride was to remain high for a long time, people would gradually switch to alternative forms of transportation. As a result, the quantity demanded of subway rides during the next six months will be less responsive to changes in the price than the quantity demanded of subway rides during the next five years.
The price of coffee rose sharply last month, while the quantity sold remained the same. who are right? T:D increased but S was perfectly inelastic D: D increased but it was perfectly inelastic H: D increased but S decreased at the same time L: S decreased but D was unit elastic M: S decreased but D was perfectly inelastic
T,H,M
Why might your estimate of elasticity unreliable for the increased train fare?
The elasticity estimate might be unreliable because it is only the first month after the fare increase. As time goes by, people may switch to other means of transportation in response to the price increase. So the elasticity may be larger in the long run than it is in the short run.
If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking one year from now or five years from now?
The policy will have a larger effect five years from now than it does one year from now. The elasticity is larger in the long run, because it may take some time for people to reduce their cigarette usage. The habit of smoking is hard to break in the short run.
Why is price elasticity demand for airline tickets for vacationers higher than business travelers?
The price elasticity of demand for vacationers is higher than the elasticity for business travelers because vacationers can choose a substitute more easily than business travelers. For example, vacationers can choose a different mode of transportation (like driving or taking the train), a different destination, a different departure date, and a different return date. They may also choose to not travel at all. Business travelers are less likely to do so because their schedules are less adaptable.
what makes a good elastic and inelastic?
The quantity demanded responds substantially to price change =elastic PRE>1 The quantity demanded responds only slightly to price change =Inelastic PRE<1
You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. When should you raise the admission price in order to increase revenue?
To determine whether you should increase or decrease the price of admissions, you need to know if the demand is elastic or inelastic. If demand is elastic, a decline in the price of admissions will increase total revenue. If demand is inelastic, an increase in the price of admissions will cause total revenue to rise.
Walk wants 10 gallons of gas Jessie wants $10 worth of gas what is each price elasticity of demand?
Walt's price elasticity of demand is zero, because he wants the same quantity regardless of the price. Jessie's price elasticity of demand is one, because he spends the same amount on gas, no matter what the price, which means his percentage change in quantity is equal to the percentage change in price.
income elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in consumers income the percentage in quantity demanded/ the percentage change in income
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, the percentage change in quantity demanded /percentage change in price
cross-price elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, the percentage change in quantity demanded of the first good /the percentage change in the price of the second good
a price elasticity of supply
a measure of how much the quantity supplied of a good responds to a change in the price of that good, the percentage change in quantity supplied / the percentage change in price less than 1 =inelastic greater than =elastic
Elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
what are the 4 things that influence price elasticity demand?
if close substitutes are available if the good is a luxury rather than a necessity if the market is narrowly defined if buyers have substantial time to react to the price
A linear downward-sloping demand curve is
inelastic at some points, and elastic at others
total revenue
the amount paid by buyers and received by sellers of a good price of the good ✖️ quantity sold elastic = total rev move in the same direction as price inelastic =total rev moves opposite direction as price
An increase in the supply of a good will decrease the total revenue of producers receive if
the demand curve is inelastic
The ability of firms to enter and exit a market over time means that, in the long run,
the supply curve is more elastic
What affect the price elasticity of supply?
time horizon. supply is more elastic in the long run than the short run