Tuesday, February 28, 2006

More on Elasticity

Remember - posting grades go from Monday morning to Sunday night. So....if you haven't posted by 7:30 am Monday morning, you're outta luck for the week. :)

Nate - post comments to others, or answer one of the other questions! I've been trying to get a variety of questions on there to answer...lame comments are not allowed. Well, they're allowed, but they don't count. Like commenting on 80's hair. Unless you relate it to demand.

Remember - short run = immediate change while long run is what will happen in the future because of a given change.

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Okay - elasticity, revisited:

1. If demand is elastic and price is raised, what happens to total revenue? How can you prove this?

2. Why is industry supply more elastic in the long run than in the short run?

3. If price were increased from $40 to $42 and quantity demanded fell from 50 to 45, calculate elasticity, state whether demand is elastic, unit elastic, or inelastic; and find out how much total revenue was when price was $40 and $42.

(Okay, so those are simple. Or rather, they should be simple)

Let me find some brain stumpers... umm..

4. Other thing equal, an increase in the number of buyers for a product or service will increase demand. Baby diapers and retirement villages are two products designed for different population groups. The US Census Bureau website, http://www.census.gov/ipc/www/idbpyr.html , provides population pyramids (graphs that show the distribution of population by age and sex) for countries for the current year, 2025, and 2050. View the population pyramids for Mexico, Japan, and the US. Which country will have the greatest percentage increase in demand for baby diapers in the year 2050? For retirement villages? Which country do you think will have the greatest absolute increase in demand for baby diapers? For retirement villages?


**this is a question I used to use as an internet assignment. Remember, you must find the *PERCENTAGE CHANGE* in demand for baby diapers and retirement villages, then the *ABSOLUTE CHANGE* afterwards. There is a difference. Can you get one of the answers?

5. Joe loves Mello Yello and will spend $10 per week on it no matter the price. What is his price elasticity of demand for Mello Yello?

6. Since some of you were confused on this one: which of the two items in each part have the higher price elasticity of demand? (and why, of course)
a. oranges or Sunkist oranges
b. car or salt
c. foreign travel in the short run or foreign travel in the long run

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Pick & choose, answer one, a few, or all. The more you work on answering, the better you will understand it.

Have fun tomorrow -

KM

14 comments:

forsnic said...

if demand is elastic that means that the goods are elastic?? right? so if this is correct then the total revenue should go down because it is not a necessity/there are many substitutes. So... it can be proved by raising the price of an elastic good such as skiing lift tickets. the resort will make less money if their prices are outrageous bec people just wont go.

theczyzewicz said...

1. The total revenue goes down. because you said so in class. (demand is elastic if P and TR do opposite things)
2. Beacause in the long run they will have more options because they can change things, in the short run they have to use what they've got because of the time factor.

Reid said...

2. The reason that industry is more elastic in the long run rather than the short run, all has to do with time. If a company has less time to produce a goods, like lets say, your boppies, then it's more inelastic because you really don't have the time to look for a substitue. In the long run, you can look around, and find the best deal for someting.

Reid said...

This one is for Nicki, I really don't think that if the demand is elastic, then the goods are elastic as well. I may be wrong with this but, what one person thinks is an elastic good, others may think that it's a inelastic good. So if companies have to make the people happy who think that the good is inelastic, than it would still be inelastic for the company. Wow, what a circle of events.

schmid said...

1. If demand is elastic and the price increase the the total revenue goes down. TR and P are inversly proportional when a good is elastic.

2. The more time the more elastic something is. Therefore industry supply is more elastic in the long run then the short run. With more time there is a greater chance for substitues and other things.

DrFeelGood said...

3.elastisity is 41/47.5 making the demand inelastic. the total revenue at 40 dollars was 2000 dollars and the TR at 42 dollars was 1890 dollars.

cranjos said...

5.) Since Joe loves Mello Yello and is willing to spend $10 a week on it no matter how much it gets him, Mello Yello is clearly an inelastic good for him. He views it as a necessity and is willing to pay a set price during any given week to get his Mello Yello, showing his Mello Yello addiction...Vault is better

Reid said...

I might not be getting elasticity, I'm not sure, but for number 5. Would the answer be more price elastic, because when you graph it it makes an E. I'm not sure. Mrs. M any comments?

Reid said...

6. Sunkist oranges would be more inelastic, because there isn't a substiture for the sunkist oranges, now if it said just oranges, which it does, then the oranges would be more elastic because more substitutes are available.
b. For cars vs. salt. Salt is the more inelastic good, this is partly due to the fact that we need some salt in our bodies to survive, we don't necessarily need cars to live, but it makes life easier.
c. If you have to get to a foreign country, fast, than the trip will be more inelastic. If the opportunity is there to wait a while, then the the trip would be more elastic. This all relates to the determinates of Elasticity, the time one. The longer the time period, the more elastic the good is. It's directly proportional.

KM said...

For #5 - yes, Reid - when you graph it, you get the "E". If he will buy just $10, no matter what quantity that would be, there would be a horizontal D curve at $10 - making it perfectly price elastic. Good job!

KM said...

The TRTest is (should be) much easier than the coefficient - so yes, you all have that right in regards to the TR questions.

For Nicki - if D is elastic, with the info given, yes, you can assume that the good is elastic in that instance - it may change if more info is given.

Long run - over time it is always more elastic because of price.

KM said...

No one's gonna catch Nate on that one? Okay. I will. :)

Nate, that's not the right elasticity.

Anyone else?

km

emkatbuto said...

Lets see if this answer to number three is right...
Calculating the elasticity I find that it equals about 2.4, after using the 'elasiticity equation'. And from that number it shows the good is elastic. To find the total revenue for the $40 original price I found 2,000 and for the increase of price to $42 I found the TR to equal 1890. Once again showing that the good is elastic because the price increased and the total revenue decreased.

gorman said...

5. joes fairly elastic because he has a straight line going up so with a higher price, he will be getting a smaller quanity since he is only willing to spend 10$