ECO1010F Week 4 2018.pptx

# Number of uses for the product a good with multiple

• 62

This preview shows page 51 - 62 out of 62 pages.

Number of uses for the product A good with multiple uses will be more inelastic. Addiction/habit forming Other determinants of the PED:

Subscribe to view the full document.

PED & REVENUE: Increase in Price Decrease in Price PED<1 Revenue increases Revenue decreases PED=1 Unchanged Unchanged PED>1 Revenue decreases Revenue increases
PED & REVENUE: Q 1 Price (rands) D 1 P 1 unitary elastic @ mid pnt On a linear demand curve, revenue is maximized at the point of unit elasticity the midpoint . The revenue remains constant at all points on a rectangular hyperbola demand curve. Q 1 Price (rands) unit elastic curve D 1 P 1 CAN YOU PROVE THESE?

Subscribe to view the full document.

Total revenue and elasticity Q 1 Total revenue MAXIMUM REVENUE Quantity Remember profit and revenue are NOT the same things!
Price elasticity of demand Q 3 Q 1 P 1 P 3 Price (rand) D 1 Q BEER Q 1 Q 2 P 2 Price (rand) D 1 Q BEER How responsive is quantity demanded to a change in price? What happens if we consider identical changes in supply along two different demand curves? S 1 S 1 S 2 S 2 P 1

Subscribe to view the full document.

Income elasticity of demand Measures the responsiveness of the quantity demanded to changes in income. Normal Goods have +ve Y elasticity Inferior goods have -ve Y elasticity
NORMAL LUXURY NORMAL NECESSITY INFERIOR Income elasticity of demand

Subscribe to view the full document.

Cross elasticity of demand Measures the responsiveness of the quantity demanded of a particular good to changes in the price of a related good. Substitutes: positive cross elasticity Complements: negative cross elasticity If goods are unrelated, the cross elasticity is close to 0
v s Cross elasticity of demand

Subscribe to view the full document.

PED is a unit free measure of responsiveness of quantity supplied to price changes PRICE ELASTICITY OF SUPPLY:
Supply Curves with constant PES Price Quantity S 2 - elasticity = ∞ Price Quantity D 3 - elasticity = 1 Price Quantity S - elasticity = 0 1 Perfectly elastic eg. cheeseburgers at McDonalds today If elasticity is between 1 and ∞, we say supply is relatively ELASTIC If elasticity is between 0 and 1, we say supply is relatively INELASTIC Unit elastic unit elasticity holds for any linear supply curve Perfectly inelastic eg. supply of land, Picasso paintings

Subscribe to view the full document.

What influences elasticity of supply? Time frame for supply Momentary supply curve: immediate response of quantity supplied Short-run supply curve: some adjustments have occurred (usually labour) Long-run supply curve: all possible technological changes have occurred Supply becomes increasingly elastic over time Also, stockpiling and capacity to find inputs .
• Spring '11
• catherinekannemeyer

{[ snackBarMessage ]}

###### "Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern