Questions tagged [elasticity]

Elasticity is the measurement of how responsive an economic variable is to a change in another.

Filter by
Sorted by
Tagged with
0 votes
0 answers
33 views

How useful are basic economics (elasticity / consumer & producer theory) in real life?

I am thinking how these concepts will be applied in the industries / at a job. For example I could see elasticity as useful in projecting the outcomes of supply ...
user avatar
  • 1
0 votes
1 answer
25 views

Trying to figure out the price elasticity of demand

I have a demand curve $y(x) = x^{-b}$ where $b > 1$. I'm trying to figure the price elasticity of demand, but I'm not familiar with finding price elasticity without having some sort of numbers. ...
user avatar
0 votes
1 answer
16 views

An attempt at using a graphing calculator to visualize the price elasticity of demand for a point moving on the demand curve

I assume a demand function ( of price) : $Q(x)= 10-2x$ , and therefore, a price function (of demand ): $P(x)= -\frac 12 x +5$. The demand curve ( $y =-\frac 12 x +5$) represents the price function, ...
user avatar
0 votes
1 answer
36 views

How to compare the price elasticity of demand from different points by looking at the graph?

Let's say I have a demand curve looks something like this: How could I analyze who have the highest or lowest price elasticity of demand? it seems that the point 1 has highest price or demand? But ...
user avatar
  • 117
1 vote
1 answer
31 views

How to represent the elasticity function with demand on the X axis? How to transform the elasticity formula to this effect?

The formula for price elasticity of demand uses price as independent variable. But I wonder what the elasticity graph looks like on an ordinary microeconomics system of coordinates, where demand is on ...
user avatar
0 votes
1 answer
27 views

Is -1 elasticity considered unit elastic or relatively inelastic?

Simple question but can't find answer. Is -1 elasticity considered unit elastic or relatively inelastic? We know that if % change in quantity / % change in price = 1, we have unit elastic, does that ...
user avatar
  • 117
1 vote
1 answer
44 views

Mathematical explanation of transformations of Marginal Revenue

MR = d(Total revenue)/dQuantity = d (Price * Quantity)/dQuanitity This is the same as this : MR = P(Q) + dP/dQ I did it with an example and it amazed me how both are equal but I still dont get how. ...
user avatar
  • 11
0 votes
0 answers
15 views

How does elasticity of demand of a public good affect tax rate?

Consider a situation with 2 consumers with one private good, and one public good; where consumers are endowed with fixed amount of private good $M_i$, and give up portion of their private good to ...
user avatar
2 votes
2 answers
439 views

Microeconomics question on elasticity

Two drivers--Walt and Jessie--each drive up to a gas station. Before looking at the price, each places an order. Walt says, 'I'd like 10 gallons of gas.' Jessie says, 'I'd like $10 worth of gas.' What ...
user avatar
0 votes
0 answers
25 views

Explaining Textbook and College Footballs Prices for Students using Elasticity

I am answering the following practice question in my Microeconomics course, and would love some feedback/check if my answers are correct: Using concepts of elasticity, explain the following situations:...
user avatar
0 votes
1 answer
54 views

Elasticity calculation

I have a utility function depending on consumption and leisure, $u(c, 1-h) = log(c) + Alog(1-h)$ subject to $c = wh + I$, where $w$ is wage, $I$ is income, $h$ is hours worked. I set up the ...
user avatar
0 votes
0 answers
31 views

Pricing elasticity*coefficient from glm

Problem: I would like to understand the pricing elasticity in an industry while factoring in other independent variables that affect units sold. Where I am currently at: Much of the data for this ...
user avatar
1 vote
1 answer
56 views

What is a simple demand function that allows for different price and income elasticities than 1 and -1?

Cobb-Douglas utility functions assume price elasticity of $-1$ and income elasticity of $1$. Are there any utility functions with two goods that lead to a demand function, where you have the choice of ...
user avatar
3 votes
1 answer
49 views

Infinite labor elasticity with frisch elasticity

It is from Hansen(1985)'s paper. Suppose that household has utility function $u(c)+v(1-h)$ and they can choose probability to work($h$) as $\alpha$. There is an insurance $b_t$ giving $1$ unit of ...
user avatar
  • 109
3 votes
1 answer
57 views

Finding the elasticity of a function with respect to a variable from logarithm

I tried to ask this question on Math Stackexchange, but got no answer. I'll try here. I am a bit confused as to how to see elasticity of a function with respect to a variable from logarithm. Lets say ...
user avatar
0 votes
1 answer
64 views

How is Elasticity at point different from Elastic Demand Curve?

Let's say I have an Elastic Demand Curve as shown below Now, as this is Elastic Demand Curve (...
user avatar
1 vote
1 answer
20 views

Slope of linear demand curve and price elasticity regions along the curve

My textbook mentions that the slope of a linear demand curve gives crucial information regarding price elasticity of demand; namely, that demand is inelastic for steeper curves and elastic for flatter ...
user avatar
3 votes
1 answer
34 views

Elasticity of the factor share

My question concerns exercise 2.4 from Hal Varian's Microeconomic Analysis. Please note that I am not requesting a solution to the exercise, and only asking how to understand what I am being asked to ...
user avatar
  • 213
5 votes
2 answers
84 views

What is the economic interpretation of $ \partial q / \partial p = - (1/p^2) w^T (D_w x) w $ in profit maximization?

Consider a profit maximizing firm that is perfectly competitive in both input and output markets. It takes $n$ inputs $ x \in \mathbb{R}^n_+ $ and produces $f(x)$ units of output, where $ f: \mathbb{R}...
user avatar
0 votes
1 answer
54 views

Why does price elasticity of demand determine total revenue?

Why is it that when demand is inelastic, price and total revenue move in the same direction, but when demand is elastic, they move in opposite directions? I understand in terms of consumer response, ...
user avatar
1 vote
1 answer
91 views

Why is Deadweight Loss Bad for Society?

I have learned that in a perfectly competitive market in the absence of externalities, taxes will impose a deadweight loss upon society, due to reduced market participation by consumers and producers. ...
user avatar
  • 13
1 vote
0 answers
18 views

Why does it make sense for Elasticity to be the ratio of a % change increase to a % change decrease? [duplicate]

So, elasticity, say the price elasticity of demand, is: $$\text{elasticity}=\frac{\text{% change in demand}}{\text{% change in price}}$$ So an elasticity of one corresponds to situations where a 1% ...
user avatar
1 vote
1 answer
25 views

How would I calculate the quantity demanded of a product with price elasticity given and price change given? [closed]

"The price elasticity of apples is -0.5. When the price of apples is $2, consumers demand 500 apples a day. If the price of apples rises to $3, how many apples will be demanded?" I really ...
user avatar
  • 11
1 vote
1 answer
80 views

Why supply is more elastic at lower prices and more inelastic at higher prices?

In my economics book*, in the lesson explaining what price elasticity of supply is, it's written: In reality, supply curves are likely to be non-linear, so will have a different PES value at ...
user avatar
  • 133
1 vote
0 answers
215 views

Why do supply curves that start at the origin have a PES value of 1?

In my economics book*, in the lesson explaining what price elasticity of supply is, it's written: Any supply curve that starts at the origin has a PES value equal to 1. The theoretical outcome means ...
user avatar
  • 133
1 vote
2 answers
38 views

What is the proper way to read and/or express "price elasticity of demand"?

The natural language phrase such as square root of x for a function $Sqrt(x)$ precedes the input with the word of. When we talk of a bivariate function, such as $x/y$ aka $Ratio(x,y)$, we say simply ...
user avatar
1 vote
0 answers
13 views

Finding own price elasticity/cross pirice elastcity

I am looking for a source where I can find the own price elasticity/cross price elasticity of public and private transport for the European countries and each continent. Does somebody know a credible ...
user avatar
1 vote
1 answer
61 views

Why do we call certain linear (affine) demand curves "elastic" or "inelastic" even though PED varies along the slope of an affine function?

I get that PED varies along linear (strictly speaking, affine) demand curves in a way that for a demand function $Q(P)=\alpha - \beta P$: $$|\epsilon_D|=1 \iff \frac{\alpha}{2\beta}=P \land |\...
user avatar
1 vote
0 answers
15 views

Why do lumber prices soar but cost of gypsum does not drop?

The cost of lumber has increased 3 fold over the last year, whereas the cost of other building materials such as gypsum has hardly budged. In North America, lumber is a dominant material used in the ...
user avatar
  • 111
1 vote
2 answers
141 views

Is it true that for Cobb-Douglas preferences, the demand function is always iso-elastic?

As we know that $Q*P=const.$ for Cobb-Douglas preferences, we can thus conclude that $\frac{dQ/Q}{dP/P}$ is always $-1$: $$ QP=const. \implies 0=d(PQ)=Q\ dP+P\ dQ \implies \frac{dQ}{Q}=-\frac{dP}{P} $$...
user avatar
0 votes
1 answer
28 views

How do I determine PED from price consumption curve with slope of zero?

Given a budget for two goods $x_1$ and $x_2$, a fixed price for good 2 and three prices for good 1 with the corresponding optimal amount of good 1 ($x_1$), I like to calculate the PED for good 1. By ...
user avatar
1 vote
1 answer
100 views

Without knowing the Slutsky equation and income/substitution effect, how can I show a certain good is inferior or Giffen?

Say I've got a function $x_1(p_1,p_2,m)$ where $p_1, p_2$ are the prices for good 1, good 2 respectively and m is the income. Now, I haven't heard of the Slutsky equation yet nor the income/...
user avatar
4 votes
2 answers
356 views

Relation of Engel-curve to income elasticity of demand; is the slope of the Engel-curve equal to the elasticity of income?

I learnt that $\frac{\Delta x}{\Delta m} \gt 0$ for normal goods, $\frac{\Delta x}{\Delta m} \lt 0$ for inferior goods, $\frac{\Delta x}{\Delta m} \gt 1$ for luxury goods and $0 \lt \frac{\Delta x}{\...
user avatar
0 votes
1 answer
45 views

Why are constant price elasticities reported?

Price elasticity of demand $\mathrm{e_{D,P} = \dfrac{dD}{dP}. \dfrac{P}{Q^*}}$ clearly depends on the levels of price and quantity. Then why is everywhere (research papers, textbooks etc.) a constant ...
user avatar
0 votes
1 answer
49 views

Calculating elasticity for $y^2e^{x+\frac{1}{y}}=3$

I want to calculate elasticity of y with respect to x for $$y^2e^{x+\frac{1}{y}}=3$$ My attempt: I calculate $y'$ using: $$y'= -\frac{f_1'(x,y)}{f_2'(x,y)} = - \frac{y}{2-y}$$ I calculated this using ...
user avatar
  • 1,384
0 votes
0 answers
13 views

Pricing optimisation when elasticities are positives? [duplicate]

I’m performing some exercises in order to get the optimal price of some product such a potato chips, biscuits, drinks, etc. (I’m taking price per unit and sales in units) But I’ve found that some of ...
user avatar
  • 111
1 vote
0 answers
37 views

Optimal price when elasticity of demand is positive? [closed]

I’m performing some exercises in order to get the optimal price of some product such a potato chips, biscuits, drinks, etc. But I’ve found that some of them have positive elasticities. This can makes ...
user avatar
  • 111
0 votes
1 answer
64 views

Relation between marginal cost and output elasticities

Does anyone know of any results that show the link between marginal cost and the output elasticities analytically? I am looking at production and cost theory books but can't find any results that ...
user avatar
7 votes
1 answer
86 views

When do workers versus capital owners share of income increase?

The share of total income obtained by workers rather than capital owners is for obvious reasons of interest. Assuming that the economy can be desribed by an aggregate production function $$Y = F(K,L)$$...
user avatar
  • 3,247
3 votes
0 answers
65 views

Question about using elasticities to compare difference rates but with different normalization

Lets say I am estimating a regression of a death rate per 100k people on an economic shock, so: $y = \beta_o + \beta_1 * X+ error$ where the dependent variable is the death rate, and x is the measure ...
user avatar
  • 125
0 votes
1 answer
28 views

What's the minimum number of datapoints in order to run a diff-in-diff?

I was thinking about running a diff-in-diff with fixed effect in order to deal with a panel data experiment. The problem is that I don't know how many datapoints I need in order to the experiment be ...
user avatar
  • 13
1 vote
2 answers
97 views

Does elasticity make sense for different levels of prices? If not, how can we fix that?

Let's say we know that our customers can't make sense of a raise in 5% of the price. It's too little for them to notice. However, an increase above 10% is easily noticed. If this is true, different ...
user avatar
  • 13
4 votes
2 answers
615 views

Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy?

According to advocates of [Modern Monetary Theory][MMT] (MMT), the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending ...
user avatar
  • 141
1 vote
1 answer
149 views

Homework Question - Price Floor / Elasticity of Demand

I'm currently taking undergrad microeconomics and came across the following question: The current price floor in the agricultural lettuce market makes it such that price of lettuce is 25% higher than ...
user avatar
  • 11
1 vote
1 answer
80 views

Why wouldn't other firms follow suit if an individual firm decides to cut its price?

Why doesn't the demand curve an individual firm faces in a perfectly competitive market have the same elasticity as it does in a oligopolistic market? Under perfect competition, if a firm increases ...
user avatar
3 votes
2 answers
439 views

First order condition of log functions in general and interpretation

In the following, a first order condition for a log function is calculated. I know how the left part was calculated, however, I am a little bit confused where the gamma on the right site comes from ...
user avatar
0 votes
1 answer
123 views

Long-term equilibrium price inelastic?

I have doubts about some economic interpretation: Why is the long-term equilibrium price inelastic? But in the short run, the equilibrium price is not necessarily inelastic. What is the economic ...
user avatar
  • 175
1 vote
1 answer
108 views

Production function and elasticity

Let $y=x_1^\alpha x_2^\beta$ where $\beta=1-\alpha$ be a Cobb-Douglas production function. Find the elasticity of the optimal demand functions (for minimizing production cost) for both goods wrt. $w_2/...
user avatar
2 votes
1 answer
183 views

Elasticity of demand

I'm reading a paper from Pindyck (1988) where $$P_t=X_t-\gamma Q_t.$$ $P_t$ is the price, $X_t$ is the demand state variable, $Q_t$ production and $\gamma\geq0$ is apparently the ''(constant) demand ...
user avatar
  • 313
1 vote
1 answer
43 views

Profit-maximization for a monopoly

Between two countries, Richland and Poorland, with a strict ban on cross-border sales agreed with the Poorlandian government. The respective demand functions for both countries are: $Q_{poor} = 10 - ...
user avatar

1
2 3 4 5 6