Questions tagged [elasticity]
Elasticity is the measurement of how responsive an economic variable is to a change in another.
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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 ...
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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.
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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, ...
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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 ...
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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 ...
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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 ...
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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. ...
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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 ...
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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 ...
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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:...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 (...
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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 ...
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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 ...
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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}...
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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, ...
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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. ...
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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% ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 $Q(P)=\alpha - \beta P$:
$$|\epsilon_D|=1 \iff \frac{\alpha}{2\beta}=P \land |\...
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Why do lumber prices soar but cost of gypsum does not drop?
The cost of lumber has increased 3 fold over the last year, whereas the cost of other building materials such as gypsum has hardly budged.
In North America, lumber is a dominant material used in the ...
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Is it true that for Cobb-Douglas preferences, the demand function is always iso-elastic?
As we know that $Q*P=const.$ for Cobb-Douglas preferences, we can thus conclude that $\frac{dQ/Q}{dP/P}$ is always $-1$:
$$
QP=const. \implies 0=d(PQ)=Q\ dP+P\ dQ \implies \frac{dQ}{Q}=-\frac{dP}{P}
$$...
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How do I determine PED from price consumption curve with slope of zero?
Given a budget for two goods $x_1$ and $x_2$, a fixed price for good 2 and three prices for good 1 with the corresponding optimal amount of good 1 ($x_1$), I like to calculate the PED for good 1.
By ...
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Without knowing the Slutsky equation and income/substitution effect, how can I show a certain good is inferior or Giffen?
Say I've got a function $x_1(p_1,p_2,m)$ where $p_1, p_2$ are the prices for good 1, good 2 respectively and m is the income.
Now, I haven't heard of the Slutsky equation yet nor the income/...
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Relation of Engel-curve to income elasticity of demand; is the slope of the Engel-curve equal to the elasticity of income?
I learnt that $\frac{\Delta x}{\Delta m} \gt 0$ for normal goods, $\frac{\Delta x}{\Delta m} \lt 0$ for inferior goods, $\frac{\Delta x}{\Delta m} \gt 1$ for luxury goods and $0 \lt \frac{\Delta x}{\...
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Why are constant price elasticities reported?
Price elasticity of demand $\mathrm{e_{D,P} = \dfrac{dD}{dP}. \dfrac{P}{Q^*}}$ clearly depends on the levels of price and quantity.
Then why is everywhere (research papers, textbooks etc.) a constant ...
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Calculating elasticity for $y^2e^{x+\frac{1}{y}}=3$
I want to calculate elasticity of y with respect to x for $$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}$$
I calculated this using ...
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Pricing optimisation when elasticities are positives? [duplicate]
I’m performing some exercises in order to get the optimal price of some product such a potato chips, biscuits, drinks, etc. (I’m taking price per unit and sales in units) But I’ve found that some of ...
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Optimal price when elasticity of demand is positive? [closed]
I’m performing some exercises in order to get the optimal price of some product such a potato chips, biscuits, drinks, etc. But I’ve found that some of them have positive elasticities. This can makes ...
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Relation between marginal cost and output elasticities
Does anyone know of any results that show the link between marginal cost and the output elasticities analytically? I am looking at production and cost theory books but can't find any results that ...
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When do workers versus capital owners share of income increase?
The share of total income obtained by workers rather than capital owners is for obvious reasons of interest. Assuming that the economy can be desribed by an aggregate production function
$$Y = F(K,L)$$...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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/...
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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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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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