de Almeida‚ Eduardo Catroga‚ João Coelho‚ Marta Francisco‚ Mário Meira‚ Francisca Rebelo‚ João Brogueira de Sousa. Basic Analysis of Markets Exercise 1. How important is it for a firm to know that the own price elasticity of the demand is unitary? Exercise 2. Admit that the market demand faced by a company is given by: q D( p‚ m‚ a) 20 p 1.5 m 0.5 a 0.1 where q is the quantity demanded of the good‚ p is the price‚ m is an indicator of consumer income and a‚ the expenditure in
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Close Substitutes Definition of the Market Time Horizon Harcourt‚ Inc. items and derived items copyright © 2001 by Harcourt‚ Inc. Determinants of Price Elasticity of Demand Computing the Price Elasticity of Demand Demand tends to be more elastic : The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price. if the good is a luxury. the longer the time period. the larger the number of close substitutes. the
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forth. However‚ there may be some goods that consumers require‚ cannot consume less of‚ and cannot find substitutes for even if prices rise (for example‚ certain prescription drugs). For such goods‚ the price elasticity of demand might be considered inelastic. A number of factors determine the elasticity: Substitutes product : The more substitutes‚ the higher the elasticity‚ as people can easily switch from one good to another if a minor price change is made Percentage of income: The higher the
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1. F. James McDonald the former president of the US automobile workers federation suggested an average reduction of 4% in the price of the car. The automobile market was weak‚ which resulted in unemployment. Lower price would lead to greater sales and stimulate employment. McDonald believed that a 4% reduction in price would increase sales by 16%.David black‚ representing the management of the automobile manufacturers disagreed with McDonald’s estimation. Black cited studies which indicated price
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Question 2 (0.5/0.5) Exhibit 2–4 Production possibilities curve data | A | B | C | D | E | F | Capital goods | 150 | 140 | 120 | 90 | 50 | 0 | Consumer goods | 0 | 20 | 40 | 60 | 80 | 100 | | | | | | | | In Exhibit 2-4‚ the concept of increasing opportunity costs is represented by the fact that: a) Greater amounts of capital goods must be sacrificed to produce each additional unit of consumption goods. Question 4 (0.5/0.5) As shown in Exhibit 8-3‚ in order to
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Analysis 3 / 19 Price Elasticity of Demand Interpretation if D = 0‚ we say that the we have a perfectly inelastic demand if −1 < if if D D D < 0;‚ we say that we have an inelastic demand = −1‚ we say that the we have a unitary elastic demand = −∞‚ we say that the we have a perfectly elastic demand if −∞ < D < −1 we say that the we have an elastic demand Example Suppose the price is initially $5.00‚ and the corresponding quantity demanded is 1‚000 units.
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The affordable bundle that yields the greatest satisfaction to the consumer is: Answer | | the maximum bundle. | | | the equilibrium consumption bundle. | | | the allowable purchasing bundle. | | | the most popular bundle. | Given that income is $500 and PX = $20 and PY = $5‚ what is the market rate of substitution between goods X and Y? Answer | | 100. | | | 4. | | | -20. | | | 25. | The budget set defines the combinations of good X and Y that Answer
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extreme inelasticity‚ so a change in price causes small changes in the quantity of DVDs rented. This means that Stagelights can safely raise their prices and expect their quantity to have little effect. Stagelights needs to move its price elasticity to unitary‚ or one‚ to return the highest possible revenue. Currently‚ Stagelights marginal revenue is less than zero and they are on the decreasing side of the total revenue curve‚ due to the inelasticity. (See Figure 4) The income elasticity of the averages
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with a fall in price. Ed=(percentage change in quantity demanded)/(percentage change in price) Ed=ΔQ/ΔP×P/Q; where P=price; Q= quantity demanded. Price elasticity of demand is of five types: Perfectly inelastic(Ed=0) Perfectly elastic(Ed=∞) Relatively inelastic(Ed1) Unitary elastic(Ed=1) Cadbury dairy milk chocolates: It is a brand of chocolate bar made by the Cadbury plc unit of Kraft foods. It first started sales in UK in the year 1905 and thereby came to India in the year 1948. Cadbury
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1 Chapter 4.1 Marginal Functions in Economics ___________ Cost: Suppose that C ( x ) describes the cost function for producing x number of a certain product. Then the ___________ cost is the derivative of the cost function‚ C ( x) ‚ and measures the rate of ________ of the cost function ______________ the number of units ______________. Note 1: The marginal cost for a particular value of x is the ___________ cost of one __________ unit of production. ___________ Revenue Function: R( x) px
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