Shape is best summarized by elasticity. • Elasticity indicates how responsive one variable is to a change in another variable: Elasticity of A with respect to B = % A/% B Common Elasticities Price elasticity of demand. Income elasticity of demand. Cross-price elasticity of demand. Advertising elasticity. Price elasticity of supply. Dr. Fida Karam (GUST) Quantitative Demand Analysis 2 / 19 Price Elasticity of Demand Definition The price elasticity of demand measures the sensitivity
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Converting all price into dollars‚ we get‚ QD = 20‚000 – (10×8000) + (1500×64) + (5×9000) + (10×5000) = 131000 Now‚ own price elasticity (ep) = × = -10‚ P = 8000‚ Q = 131000 Own Price elasticity (ep) = - 10 × = - 0.61 (approx.) Cross price elasticity (exy) = × = 5‚ Px = 9000‚ Q = 131000 Cross price elasticity (exy) = 5 × = 0.34 (approx.) Income elasticity (eI) = × = 10‚ I = 5000‚ Q = 131000
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Assignment: EC180 Assignment Analysis of Smoothies THEO FRANKLINOS SMOOTHIES Introduction This review is based on an economic analysis of the ‘Smoothie’ product market. Smoothies are chilled beverages made of pureed fresh fruit or vegetables often mixed with ice cream‚ yoghurt or milk. There is no main recipe for a Smoothie and the different manufacturers produce differentiated products with respect to the ingredients and texture of the drink. They may also add sugar and vitamins
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Price Elasticity on the Supply & Demand Curve Name: ____Sara Memic_________________ Directions: Complete the questions below by referring to the corresponding information or websites located above each question set (A-C). Answer the questions electronically in RED text or hand write the answers‚ scan the document‚ and upload it in this assignment box. A. Watch this 8 minute video clip about demand and answer the questions below: http://www.youtube.com/watch?v=lmr4-ocHjLA 1. Why is calculating
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train travel increases by 10% and the demand for train travel falls by 12.5%. The price elasticity of demand for train travel is – -1.25 The short run (retail) supply of freshly cut flowers is much less elastic than that of pot plants because: -florists cannot keep freshly cut flowers as long as pot plants If demand drops to zero at the slightest increase in price‚ demand is: - Perfectly elastic Price elasticity of supply will be greater when: - firms hold large stocks.‚ some time has passed.‚ firms
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will prevail under a completely free market. (b) Calculate the price elasticity of supply and demand at the equilibrium values. 2. Suppose the demand curve for a product is given by Q = 10 – 2P + Ps ‚ where P is the price of the product and Ps is the price of substitute good. The price of the substitute good is $2.00. Suppose P = $1.00‚ (a) What is the price elasticity of demand? (b) What is the cross elasticity of demand? 3. The following function shows the market demand for wheat:
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glanced through a Business magazine while his thoughts travel in the direction of solving the budget • Suddenly his eyes fell on the article “The Journey to Work in the Metropolitan Area” • He noticed the following Short run fare elasticity -0.3 Long run fare elasticity -1.1 Facts and figures • Current daily ridership of Delhi Metro is 0.8 million at average current fare of Rs15 per ride • A linear approximation can be made for Delhi Metro according to MD. • In the short run most costs would
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demand for a product can be illustrated on a demand curve. Other factors such as a change in the level of income and a movement along a demand curve. Price elasticity of demand measures the responsiveness or sensitivity of the quality demanded of a particular product to change in its price. There are a number of factors that affect the elasticity of demand for a product. The law of demand states that there is a direct relationship between the price of a good and a demand for it. Usually the quantity
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technology improves • The shortage is the quantity gap between the demand curve and the supply curve at the shortage price. • A surplus occurs if the price is maintained higher than at E. • Demand is more price elastic in recessions • The price elasticity of demand equals the percentage change in quantity of units sold divided by the percentage change in price. • It measure how quantity or unit purchases by customers respond to changes in price • e = - (% change in Q)/(% change in P) • firm
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Define: i) Price elasticity of demand ii) Price elasticity of Supply. b) Suppose that decreasing the price of a pen from 10 to 5 Rs. Increases its demand from 500 to 750. Calculate the Price elasticity of demand. c) i) What does perfectly elastic demand mean? ii) What does perfectly inelastic supply mean? Explain using diagrams. 3) i) The accompanying table gives part of the supply schedule for personal computers in the United States. a. Calculate the price elasticity of supply when
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