Questions tagged [elasticity]
Elasticity is the measurement of how responsive an economic variable is to a change in another.
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questions
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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 ...
2
votes
1answer
62 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/...
2
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1answer
171 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 ...
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0answers
17 views
Are economic profits above normal for many firms in a perfectly-competitive increasing-cost industry?
In a perfectly-competitive constant-cost industry, all firms will have normal profits in the long run. This fact is very clear to me as the long run supply curve is perfectly elastic and hence each ...
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1answer
28 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 - ...
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1answer
67 views
Elasticity Cobb-Douglas productionfunction
I am given the production function
$y=x_1^\alpha x_2^{1-\alpha}$, where $0< \alpha <1$ I found the demand functions for minimum production cost to be
$ x_1^{*}(w_1,w_2,y)=\left ( \frac{w_2}{w_1}\...
2
votes
1answer
23 views
What does the following mean: "supply has positive elasticity”?
What confuses me in particular is that I always thought of the concept of ‘elasticity’ with respect to something. That is, supply of x can be elastic with respect to y.
Am I missing something?
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Why does short run market supply become more elastic with more firms
I have heard a justification along the lines of this: The supply curve becomes flatter (more elastic) with more firms in the market, because a given increase in price calls forth more production when ...
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1answer
68 views
Solving problem for optimal price (maximize profit) *attempt inside*
Let a demandfunction be defined as
$D(p)=B-bp$, where $b,B>0$. A firm has some production cost, $c$, and can set the price $p$ under the constrain given by the Demand.
What is the optimal price?
...
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1answer
31 views
Do barriers to entry increase the (collective) market power of incumbent suppliers?
For example in the case of the labour market lower immigration means that low-skilled labour can ask higher wages or better conditions (other things equal). Low skilled labour may have even put the ...
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29 views
How can I formulate price elasticity of demand equation when I want to add cross price elasticity?
I am trying to calculate the price elasticity of demand for a product where I used the equation
log(volume) = elasticity * log(price) + seasonality dummies + trend index + CPI
Here CPI is the consumer ...
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1answer
31 views
Elasticity of intertemporal sustitution with composite CRRA function
In the usual CRRA $\frac{c^{1-\sigma}-1}{1-\sigma}$ function we have that the intertemporal elasticity of sustitution $\partial\frac{c_{t+1}}{{c_{t}}{\partial r}}$ is $\frac{1}{\sigma}$.
But how can ...
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1answer
42 views
Examples of bounded, positive, inverse demand curves
The three most common examples of demand curves I am aware of are
\begin{align}
Q&= b - aP,\\
Q&= bP^a,\\
Q&= b e^{-aP}\\
\end{align}
The first being our classic linear demand curve, the ...
0
votes
1answer
21 views
Price elasticity of demand of CES
Anyone would like to help me show the following ( or a book/paper reference would be a great help)
" The price elasticity of demand is equal to $\sigma$ for the demand function of CES preference,...
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1answer
46 views
Is saying that the demand is elastic or inelastic too oversimplified?
As we know that elasticity varies from infinity to zero as we move along a linear demand curve, then is it correct to label any demand curve elastic or inelastic as a whole?
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Estimating $dL/dw$ with direct dependencies using total differential
I have $U(C,L) = U(C) - v(L)$ where $C$ is consumption and $L$ is labor supply. From my first order conditions, $C$ is a function of $w$, wage, and $L$. $L$ is a function of $w$ and $C$. Leisure is $N ...
0
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1answer
21 views
why does income of executives level out in the long term after tax increases?
Marginal Revolution University has the following question in its Elasticity unit:
In 1993, then President Clinton passed a law raising income taxes.
This tax hike was fully expected: He campaigned on ...
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1answer
88 views
confusion regarding elasticity of a demand curve
The following question is on a quiz at Marginal Revolution University:
https://mru.org/practice-questions/calculating-elasticity-demand-practice-questions
The elasticity of demand is 2.0. Is the ...
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0answers
7 views
Non Linear regression to obtain diminishing marginal effect / elasticity
I am working with some real estate data on housing units. For a given market, I have data on occupied units, rents, and control variables such as population, demographics, income levels etc.
I'd like ...
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0answers
20 views
Question on estimating elasticity and cross elasticity with log-log regression model
For a regression model: Y = B0 + B1.X + B2.X2 + U, B1 and B2 is the marginal effect on ...
2
votes
1answer
81 views
Interpretation of Demand and Cost Curves
I am currently starting on the topic of monopolies in school and I encountered the following scenario:
A monopolist faces a demand curve given by $Q = \frac {100} p$ and a cost function given by $C = ...
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1answer
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Microeconomics undergraduate ELASTICITY help (differentiating log-linear demand curve) [closed]
How do you show that the price elasticity of demand is a constant if the demand function is log-linear? To show this, how do you differentiate the log-linear demand curve to determine dQ/dp, and ...
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1answer
70 views
Log log regression with fixed effects and cross elasticity of demand
I have a time series of units sold, and price. I'd like to calculate elasticity of demand wrt to price and a few other variables, some of them are fixed effects.
...
6
votes
1answer
112 views
What is the empirical price elasticity of demand for insulin?
A lot of textbooks say that demand for insulin is perfectly inelastic. I don’t think this is quite true (and I am a type 1 diabetic). It’s clearly very inelastic, but not perfectly so. There are ...
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1answer
47 views
Regression approximation for the rate of change in occupancy rate of residential market with respect to price
I have historical data on occupancy rates for a given neighborhood, along with characteristics and other local economic variables.
I am looking to estimate the regression equation with occupancy rates ...
2
votes
1answer
51 views
Piketty's explanation of elasticity of substitution (from his book Capital in the 21st century)
I have some trouble following the explanation of the elasticity of substitution between capital and labor and its implications on p189.
Take this part:
The relevant question is whether the elasticity ...
3
votes
2answers
122 views
Terminology, is elasticity used as “mean elasticity”?
Given a demand $q$ and a price $p$ sutch that $q=q(p)$, the elasticity of demand is given by,
$\epsilon = \frac{p}{q}\frac{dq}{dp}$
which depends on the price.
But, when reading papers about ...
3
votes
2answers
76 views
elasticity from inverse demand
I was wondering of my thinking here was right:
Given $$ e=\frac{dQ}{dp}*\frac{p}{Q}, $$ where
$ e $ is elasticity, $ dQ/dp $ is first derivative of demand function, $p$ is price and $Q$ is quantity.
...
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0answers
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If the Yield (Y) of the cosnumers change, does the $Q_{D}$ remain parallel?
Because we have a change in Yield (Y) which is a factor of demand, we have a move in the $Q_D$. However, not all changes in the Yield affect the $Q_D$ the same way right? For example, if we know that $...
2
votes
1answer
60 views
Find Price Elasticity of Demand for p = 0
Given a linear demand curve $q(p) = a - bp$, how would one find the price elasticity of demand at $p = 0$? The quantity that would be demanded is given: $Q_0 = a$
The formula for the price elasticity ...
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0answers
32 views
Using ML to estimate demand function
Say, I am looking to estimate the demand curve for rental of a real estate property. The demand varies depending on time of the year, location, economic and demographic variables.
I'd like to ...
3
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1answer
306 views
Why is the graph of unitary elastic demand a hyperbola?
My teacher said that the graph of unitary elastic demand is a parabola:
But i fail to understand how in a hyperbola the percentage change of price and quantity demanded remains same. Can someone ...
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0answers
13 views
Can there be elasticity for income in an inferior good, when the price is out of its limits?
(Skip to 3. for the actual problem I am facing. Everything else is just to help you understand it better up to that point)
Two goods $X$ and $Y$ are substitutionals. For $P_X=20$ consumers ask for $Q_{...
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votes
1answer
36 views
How do you calculate the price of a good or service adjusted for scarcity?
For example, Widget A is worth \$100 when there are 50 of them available in the market, but the price goes up to $110 when there are only 40 of them left.
Widget B is worth \$100 when there are 50 ...
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2answers
56 views
Calculating price elasticity by asking a “this” or “that” question
Let's say 2 goods exist: A for 10 and B for 20 (B is more premium in this example)
If I decrease the price of both goods by 10% and ask:
"Do you prefer A for 9 or B for 18 "
What sort of insights (...
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0answers
18 views
Elasticity of substitution of a general production function with labor-augmenting technological progress
I am following and trying to fully understand a famous and interesting work of Bentolila and Saint-paul (2003). They try to explain movements of the factor's share in terms of a relationship between ...
0
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1answer
40 views
Can the demand curve be a rectangular hyperbola, but $E_D \neq 1$? [closed]
So, I am given the next table:
I am asked to find $Q_D$.
So the prerequisites to find $Q_D$ is that the price must change, and all other factors of demand must be steady. So, I can find the $Q_D$ ...
2
votes
1answer
42 views
Constant Elasticity of Substitution (non-special cases)
I am trying to better understand the CES function:
$$Y_{t}=C\left[\pi\left(A_{t}^{K} K_{t}\right)^{\frac{\sigma-1}{\sigma}}+(1-\pi)\left(A_{t}^{L} L_{t}\right)^{\frac{\sigma-1}{\sigma}}\right]^{\frac{...
0
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0answers
13 views
How to determine intergenerational income elasticity over more than two generations?
I do have income data for individuals from different families over three generations (y, yparents, ygrandparents). To determine the two-generational social mobility, I run a simple linear regression:
...
2
votes
1answer
57 views
Intuition: Can someone explain me this contradiction please?
(This is about price elasticity of demand) Both figures are demand curves. In figure 1, the curve includes both high elasticity (|E|>1) and low elasticity (|E|<1) but in figure 2, the curve is ...
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0answers
24 views
Necessary Goods, Price Elasticity, Long-Term Calculations
My question is a conceptual one, though it arose from a concrete calculation that I'm working on. I'm looking at the economic viability of thermal retrofits, and this author suggests including the ...
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1answer
20 views
Unit Elasticity Calculation Question
I'm struggling with a math concept dealing with unit elasticity at an undergraduate textbook level. In most problems, we are given a starting price and an ending price as well as corresponding ...
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0answers
20 views
Over What Ranges Can Elasticity Estimates Be Applied
I am reading the following paper: https://onlinelibrary.wiley.com/doi/full/10.1111/1756-2171.12113
The paper attempts to estimate the elasticity of pharmaceutical innovation (measured by # of new ...
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1answer
42 views
Are these two derivatives the same with regards to TR?
Given that Marginal Revenue is change in Total Revenue:
TR = P*Q
P = f(Q)
TR = f(Q) * Q
MR = dTR/ dQ
Or
...
2
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2answers
101 views
Why does price elasticity of demand formula work?
Hi there,
I understand how to use the price elasticity of demand formula (mid-point method), shown in the picture above.
However, I'm not too sure why exactly it works.
Why are dividing the change ...
3
votes
1answer
36 views
Does one include inflation when computing elasticity?
I am attempting to compute the price elasticity of a good with the help of a time series, and am unsure whether to correct the prices for inflation. Is there a standard argument for one or the other ...
0
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1answer
21 views
Finding data on (estimated) trade cost elasticities of imports
I'm an undergrad student of economics, and I need to find estimates of the trade cost elasticity of the UK's imports for some homework. My instructors pointed me to the World Bank's databases, ...
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0answers
26 views
What does the elasticity say about the fraction of total cost used on input 1?
A firm have the following production function
$$
y=x_{1}^{\alpha} x_{2}^{1-\alpha}, \quad 0< \alpha < 1
$$
$w_1>0$ is the cost of input 1 and $w_2 > 0$ is the cost of input 2.
(1.1) ...
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2answers
65 views
Who set the price on product in the USA?
I was asking a buddy a question about pricing and he said that you can't control your own pricing.
The context to this question was, I said if you tax firms more, then they're going to raise the ...
0
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1answer
35 views
which is an example of demand curve that is always inelastic/elastic?
Which class of functions have the property of being always elastic?and instead always inelastic?
