Monday, February 26, 2007


Don't you hate it when you just get a kick in the head that you are SO FAR BEHIND on everything that it could take days to get caught up?

Ah, well. I forgot to post stuff on elasticity on Thursday before I left. We were in an intense discussion on what should be taught in US exciting! After that scintillating conversation, I was too tired to think...I even forgot to take my grading home with me!

A good question from Keri:
"Alright, I keep trying to think of things that are either inelastic or elastic, straightforward one or the other, but in so many differnt cases I think of different scenarios in which case they could be both. First of all, can people name different things that are alwasy elastic and always inelastic? Second of all, on the AP test will it be really straightforward whether the items they are talking about are one or the other, or will I sit there and think about it too much? I mean, a car is inelastic if you need it to get to work and you live far away from work, but elastic when you are looking at a luxury car....there are alwasy so many variables to consider"

My quick answer: Yes, you will overthink it, because that's what Keri's do. But - on the national exam they will try to be as explicit as possible, so work on reading only what's in the question. Elasticity can (and is) a personal thing - what's elastic for me may not be for you. If it says, "assume that cars are an elastic good"...make sure you do! :) Any other comments from others?

Okay - some things on elasticity:

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, , 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. In an effort to 'support' the price of some agricultural goods, the Dept of Agriculture pays farmers a subsidy in cash for every acre that they leave unplanted. The Agriculture Department argues that the subsidy increases the 'cost' of planting and that it will reduce supply and increase the price of competitively produced agricultural goods. Critics argue that because the subsidy is a payment to farmers, it will reduce costs and lead to lower prices. What argument is correct? Is this a price ceiling or a price floor in action? Explain.

7. Lovers of classical music persuade Congress to impose a price ceiling of $40 per ticket. Does this policy get more or fewer people to attend classical music concerts?

8. The government has decided that the free-market price of cheese is too low. If the government imposes a binding price floor in the cheese market, what would that do to the price and quantity of cheese sold? Is there a surplus or a shortage?

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


Wojtek said...

#1- If a demand is elastic, that means that the rise in price will be followed by a fast and significant drop in quantity sold. Therefore the total revenue will decrease.
(anyone has a better proof?)

#2- The industry is more elastic in a long run because it can change its output only in a long run. They can't switch to producing something else overnight. Adjusting to the market needs takes a lot of time for industry and that's why it is inelastic in a short run.

champion said...

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?

Joe has a perfectly inelastic price elasticity of demand of $10.

i don't think i did that right. hmm.

KM said...

If the price is set, that means it will be a horizontal D curve - so it is perfectly elastic. :)

Think of the graph - I always have to. Which is constant? P or Q?

domino said...

#3. the price elasticity is 2.16, making it an elastic good. and the TR for $40=2000, and TR for $42=1890

D Mac said...

#7. so i think if the government put a price cieling on tickets to classical music concerts it could have either affect on ticket sales.

theoretically the number of sales would increase because the tickets cost less and more people would be able to afford them. unfortunately some people go to classical concerts because they view it as a status symbol. they can afford to go to something as frivolous as a classical concert so they must be well off. when the price drops, it becomes less of a symbol and people don't find it as much of a big deal if someone goes to a classical concert or not, driving sales down.