Questions tagged [elasticity]

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

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Utility functions that exhibit nonconstant elasticity of marginal utility

Consider there is a single good in the economy. The class of utility functions for which the elasticity of marginal utility $\eta$ is constant is given by $$U(C)=\frac{C^{1-\eta}}{1-\eta}$$ for $\eta&...
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elasticity of labor supply

Labor supply is $ L(s,H) = \frac{f(\theta)}{s + f(\theta)} H $ Now the elasticity wrt to tightness $\theta$ is supposed to be $\epsilon_L= \epsilon_f - \frac{f(\theta)}{s + f(\theta)} \epsilon_f$ ...
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Significance of simultaneity BIAS in local retail shop belonging to a big retail chain

This question follows from the previous question on multiplicative BIAS in cross-price elasticity, but I think it deserves its own space. I have scanner data from a small store branch belonging to a ...
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Incorporate fixed effect in pricing decisions with linear models

I have the following model the predict the log of volume: fixed_effect + day_of_week_effect + elasticity*(Price - competitor_price). I want to formulate an optimization problem that maximize my profit ...
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Why does the price of firewood from Ardennes forests rise when the price of natural gas from the North Sea rises?

I have an exam question from last year that I don't understand. I have to explain this : why does the price of firewood from Ardennes forests rise when the price of natural gas from the North Sea ...
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Elasticity of job-finding rate

The job-finding rate is $ f(\theta) = \omega \theta^{1-\eta} $ Then the elasticity wrt to tightness is $\epsilon= \frac{d f}{d \theta} \frac{\theta}{f} = \frac{d ln(f)}{d ln(\theta)} = \frac{d ln(\...
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Example of a utility function which yields inelastic demand function

I am looking for a example of a utility function which, when the utility maximisation problem is solved, results in an inelastic demand. The standard examples in textbooks always seem to have unitary ...
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Deriving the tax incidence formula -- what am I doing wrong?

I'm trying to derive the tax incidence for an excise $t$ so that producers receive $p$ and consumers pay $q=p+t$ per unit. The formula I am seeing everywhere is some version of $$ \frac{\mathrm{d}p}{\...
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Definition of semi-elasticity

The "$x$-elasticity of $y$" is defined as $\epsilon = \dfrac{\partial y/y}{\partial x/x}$. The $x$ goes down, and the $y$ goes up. But we have two definitions of semi-elasticity: $\epsilon_1 ...
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Aggregate elasticity of demand in a differentiated products market

Is the notion of aggregate elasticity of demand applicable in a market for slightly differentiated products? Intuitively, it seems like it should. If market output can be expressed in a single number (...
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Engine efficiencies on small scale ( ice engines vs turbines

A formula one engine is around 51% efficient (and if it weren't for the regulation and rules it might have been close to 55 to 60% efficient read somewhere in Google) that the extreme side but there ...
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Calculation of simple elasticity problem

I'm reading Advanced Macroeconomics by Romer and having trouble to understand very simple calculation provided in just one sentence. Define real money market equilibrium condition as $(\frac{M}{P})^s=...
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MCQ on income and substitution effects

Person A spends their income only on bread and cheese. Given a rise in the price of bread leaving income constant and the price of cheese constant, the consumer consumes less bread and less cheese. ...
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How to isolate cross-price elasticities for a price increase across a portfolio of substitutable products?

My business offers a portfolio of 4 products which are substitutes for one another. Over the years, we have increased the prices of these products by varying amounts, such that we can estimate the ...
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the income elasticity at the mean values

What is the formula of the income elasticity at the mean values? I have two variables, I is income and C is consumption. And I have 10 observations (sample size) Regresison equation $$C = a + bI $$ ...
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why is increasing price not more profitable when the demand is unitary elastic?

according to the theory (if p-p1=q-q1), the total revenue remains the same because the demand decreases by the same percentage price does. If this is the elasticity of a product, the company ...
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Price elasticity of demand when total expenditure is constant

I was recently given the following question: assuming that a consumer's total expenditure for a good does not change when the price of that good declines, what is the price elasticity of that consumer'...
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Is the supply and demand elasticity equal at the equilibrium?

I am working through homeowrk problems and we were asked to calculate the supply and demand at the equilibruim using either the point or arc method. I chose to use the point method and will provide a ...
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how is output elasticity different from marginal product of a factor input?

marginal product has been defined as the addition to total product given the employment of one more unit of a factor input. output elasticity has been defined as the percentage change in output given ...
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Inequality and effect on pricing

Suppose there’s an island that for whatever reason has a finite amount of US Dollars; 1000 residents live on the island and use this fixed amount of currency to exchange goods and services. Suddenly, ...
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What point am I calculating the PED (Price Elasticity of demand)

I'm at a very basic level of economics (highschool), so what I write may not be very coherent, i'm just a bit confused and I can't get any book or source to awnser the question I have. See, the ...
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Price elasticity of demand/supply following tech change

Is the answer (b) ? I found the two equilibrium prices before and after the change by doing Q^D = Qs1, Q^D = Qs2. Before the change, I get for the supply side : P = 15 and Q = 5, giving me a price ...
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Elasticity computations and revenue

I would have appreciated some help in this issue. I have a demand schedule that looks like this ...
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Price elasticity of demand coefficient

I am working on the following question: AS price increases along a straight line demand curve, will the price elasticity of demand coefficient increase, decrease or remain unchanged? The answer states ...
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Elasticity computation

Suppose that we have the following regression: $$ln (h) = e_{0} + e_{1} ln (w) + u$$. Isn't elasticity $e_{1}$? in other words: $\frac{\delta ln (h)}{\delta ln (w)}$? I am a bit confused since I have ...
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Why don't producers of goods with inelastic demand refuse to increase supply?

I'm reading Paul Samuelson's Economics (19th edition, 2009). In page 71, the Paradox of the Bumper Harvest is introduced. According to the paradox, an increase in food supply from a good harvest ...
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Is the price elasticity of a product equal to the sum of all cross-price elasticities of demand for that product? Why?

I encountered the claim stated in the title, without it being further substantiated. I'm looking for some elaboration on it, assuming it's true. Also on an intuitive level.
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Why is the demand curve inelastic for essential items?

Elasticity refers to the percent change in quantity with respect to the percent change in price. Elastic means that the percent change in quantity is greater than the percent change in price. ...
Arunabh Bhattacharya's user avatar
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Price Elasticiyt of Demand & (AR - MR)

I have the following question: Using this equation: $MR = P(1+\frac{1}{ε})$ and the attached graph. How does the vertical distance between the demand curve and MR curve at a given level of output ...
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Different methods to calculate price elasticity

I was testing different methods to calculate price elasticities in simple theoretical scenarios and I encountered a seemingly discrepancy between two very popular methodologies. Methodology 1: use the ...
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Elasticity of substitution between capital and effective labour

While going through the derivation of elasticity of substitution between capital and effective labour in economic materials for a Slow growth model, I found the following step there: $\frac{\partial ...
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Different elasticities of substitution

I have been reading into generalizations of the concept of elasticity of substitution for more goods/inputs and three main possibilities emerged: Hicksian EOS Allen-Uzawa EOS Morishima EOS HICKS As ...
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Which utility functions generate constant (but arbitrary) price/income elasticity of demand functions?

I want to estimate a demand function, and for convenience, I would suppose it has constant price and income elasticities: $\varepsilon$ and $\eta$, let's say. That is, demand $x_i(p, w)$ would be ...
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Optimised Pricing with Static Price Data

If you have price data going back several years, but the price is constant, is there any way to work out the elasticity of demand (or dynamically optimise prices another way). The sales volume is in ...
Ben Marshall's user avatar
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Truth behind Samuelson's statement against elasticities

I found the following statement by Paul Samuelson: Through the influence of Alfred Marshall economists have developed a fondness for certain dimensionless expressions called elasticity coefficients. ...
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Price Elasticity with real monthly data

Is it possible to calculate the Price elasticity based on the following set of data? I tried with the formulas widely available, but looks like the results are not correct.
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How to determine elasticity of demand when equation has more than one variable

How should one go about determining the own price elasticity of demand of the following: Assume that the market demand for barley is given by: Q=1,900−4PB+0.1M+2PW , where Q is the quantity of barley ...
John M Keynes's user avatar
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why is diamond an inelastic good?

I understand that since diamonds are valued as rare, high-value items in society, even when the price for them increases, the quantity demanded remains the same. That is, people are willing to pay ...
Susanoo D Ace's user avatar
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Krugman Model: Profit Maximization (relation price elasticity of demand and elasticity of substitution)

the pictures outline the situation and my problem. The only thing I dont understand, is why the inverse of the price elasticity is equal to the negative elasticity of substitution? (price elasticity ...
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Trans-log production function or trans-log cost function

I'm researching to analyze the elasticity of substitution between factors of production. From what I've read, many researchers use the trans-log production and cost functions. Which function should I ...
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Examples of instrumental variables for business problems (not rainfall!)

I have been learning about IV as a non-economist and I think I understand the examples I've seen which used rainfall as an IV for modeling the sales of crops or fish at an outdoor market. However, for ...
Arthur's user avatar
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Difference between price elasticity of demand and arc price elasticity of demand [duplicate]

I am very confused between the definitions of price elasticity of demand. The actual definition I was given is $$E=\frac{\Delta Q \backslash Q}{\Delta P\backslash P}$$ I was once asked the following : ...
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Using price elasticity of demand to optimize price increases

I want to share some context with you I am working for a pharmaceutical company and the business side needed to update the price for some products once a year. So I thought to develop a model to ...
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How does the market respond when some suppliers of one product are forced to switch to supplying a similar product?

I'm interested in coming up with a basic model to describe the following simple situation. Initially there is an equilibrium in the market for the consumption of product A and product B. Product A and ...
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Is elasticity of substitution defined for non-homogeneous production functions?

The elasticity of substitution between two inputs $x_1$ and $x_2$ is typically given as $$\frac{d \ln \left( \frac{x_2}{x_1} \right)}{d \ln(\mathrm{MRTS}_{21})}.$$ As these notes show, if the ...
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Is there a standard term for the elasticity of an isoquant?

Isoquants - the level sets of a production function $f$ - are very useful in microeconomics. For example, if we hold all but two inputs fixed, then the isoquant is a plane curve that quantifies the ...
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How is it possible for demand to be perfectly elastic under perfect competition?

So according to perfect competition, a single firm is a price taker, having to sell at the equilibrium price as determined by supply and demand. As you can see from the single firm graph, demand is ...
Anthony Fallone's user avatar
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Monopolies on Giffen Goods

I’m taking an intermediate microeconomics course in college and just got to the topic of monopolies. I know the concept of a Giffen good. As always, Revenue is given by $R= Pq$. Since the monopoly has ...
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Derivation of Allen-Uzawa Elasticity of Substitution from Hicks Elasticity of Substitution in two goods

Everywhere I've looked, the author of the text asserts that the Allen-Uzawa Elasticity of Substitution is equal to the Hicks Elasticity of Substitution in two goods. I've spent a long time trying to ...
Andrew Lys's user avatar
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Question regarding perfectly elastic demand

I know that perfectly elastic demand looks like a horizontal line on a graph, but this implies that somehow the quantity demanded is multiple values simultaneously at a single price point. How is this ...
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