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

4 comments:

mrsmichelleadams 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.

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