Questions tagged [elasticity]
Elasticity is the measurement of how responsive an economic variable is to a change in another.
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Cross price elasticity of demand vs Price elasticity of demand
Is the cross price elasticity of demand between two goods always lower in magnitude than the price elasticities of demand of each good?
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45 views
Question about Supply and Demand of health supplements, equilibrium price and quantity
Nowadays, It is observed that people are more health conscious taking more regular health supplements. Moreover, more drug companies are involving in the production of health supplements.
a) How ...
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1answer
26 views
Income Elasticity and Convexity of Demand in Income
What needs to be true about the demand function $z(y)$, where $y$ is income, for the income elasticity $\varepsilon = \frac{dz(y)}{dy}/\frac{z(y)}{y}$ to be always greater than one (so that the good ...
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Demand Elasticity, Factor Substitution: Independent?
Given $ Y=f(K,L;\sigma) $, the effect on labor from a change in the price of capital can be gauged through a substitution effect and a scale effect:
\begin{align*}
\frac{\partial L}{\partial r} & ...
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27 views
Elasticity of Substitution between 2 factors, without knowing relative prices
I'm trying to figure out the elasticity of substitution between input $s$ and input $v$. I know that the marginal rate of substitution between these two inputs are $\frac{v^2}{s(v+k)}$, where $k$ is ...
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1answer
19 views
How does elasticity impact market efficiency?
I am wondering how the price elasticity of demand (or supply) impacts market efficiency. A more specific question - can we say that in a monopolized market elasticity will be low, and that in a ...
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1answer
35 views
Monopoly equilibrium with a completely inelastic demand [closed]
What is the impact of an inelastic demand function on a monopoly production and pricing strategy ?
Theory states, that a monopoly will strive to maximize its profits, by arriving to a point where the ...
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4 views
Syprine (pharma) prices
I suppose that pharmaceuticals that prevent fatal complications are elastic and the public (government) has to pay whatever the price asked. Although its reasonable that a pharma company that ...
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1answer
42 views
Using an elasticity to evaluate changes in a dependent variable
Often in textbooks and online I see thte definition of an elasticity to be as follows:
1) $\epsilon = \frac{\frac{\Delta Y}{Y}}{\frac{\Delta X}{X}}= \frac{\partial \log Y}{\partial \log X}$
Thus, ...
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25 views
Low capitalist savings rates [closed]
Negative capitalist savings rate in the 30s, does this refute stimulus
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21 views
Elasticity of demand for loanable funds
If there is low confidence in the economy will this reduce the elasticity of demand for loanable funds because for a given decrease in the rate of interest, demand for loanable funds would be less ...
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1answer
19 views
Conducting an experiment to calculate empirical elasticity with very small price changes
Let's say I want to conduct an experiment where I randomly vary the price of a product up or down by a small amount. Let's say I want to understand the price elasticity of demand for online shoppers ...
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1answer
91 views
Unitary Elastic Demand
My teacher defined Unitary elastic demand as demand which has $PED = (-)1$ . The formula I have been told for $PED$ is $\%\Delta Q_d /\% \Delta P$. But how can total revenue $( = P\times Q)$ remain ...
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34 views
PED and change in revenue
Ok so I was arguing with my teacher about this one question: Based on the price elasticity of demand coefficient determine whether the price should be increased or decreased for revenue to increase.
...
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278 views
Inferior and normal good and the change in price of those goods
In general, We know that if a good is normal, then as your income increases, then demand of that good increases as well as price is fixed. Similarly, if a good is inferior, then as your income ...
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1answer
41 views
Elasticity of subsitution: a redundant calculation?
Elasticity of subsitution is a measure of the curvature of an isoquant1 and can provide us information regarding the nature of the production functions we are dealing with. this is visualized in ...
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Elasticity of substitution meaning
If I computed an elasticity of substitution of f.e. 0.9 between capital and labour, does this implicate that the factors are rather well substitutable or not? Since for 0 they are perfect complements ...
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1answer
142 views
Marshallian demand curve elasticities [closed]
I am stuck on a multiple choice question that came up on a Micro university past papers.
The question is:
Marshallian demand curves derived from utility function: $U = log(x) +
log (y)$. What is ...
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17 views
Raising the elasticity of substitution in an economy
Papers such as de la Grandville (1989) and Klump/de la Grandville (2000) have shown that a higher elasticity of substitution leads to higher economic growth. My question is, if there is a way to ...
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1answer
67 views
CES function estimation
For a paper I was using the micEconCES package to estimate the CES production function for a country at the aggregate. For a two-input function with capital and labour I used for the variables the ...
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19 views
Broyden-Fletcher-Goldfarb-Shanno, L-BFGS-B, PORT
I was looking for advantages and disadvantages of the Broyden-Fletcher-Goldfarb-Shanno algorithm (BFGS), the L-BFGS-B and PORT algorithm in optimization. Which one promises the best results and why?
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30 views
Simulation with a priori elasticity: how do I calculate elasticity of the simulated data?
I'm building a simulation with an a priori elasticity estimate, and building a simulation to see how many samples I need until I converge to the correct elasticity estimate based on that simulated ...
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Price elasticity for multiple companies with varying market share
Suppose that in month #1, in the automotive sector, 100 cars were sold in total. Company A sold 10 of these. In month #2, 90 cars were sold, 9 of these by company A.
When calculating the price ...
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1answer
272 views
How does price-elasticity of supply affect the incidence of tax on consumer and producer
From what I've read only price-elasticity of demand (PED) (not price-elasticity of supply (PES)) affects the burden of tax on the consumer/producer. However, my graphs suggest PES does affect it. Why ...
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28 views
Price Elasticity and Total revenue
So my question is, they say when the demand is inelastic and we raise the price the total revenue goes up, now suppose a 25% rise in price results in a 24% fall in demand, and I know it is very close ...
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61 views
How to derive (leisure) demand elasticity in these research papers
I was reading one research paper from American Economic Review (AER) and tried to understand how the authors derived demand functions and equivalent variations (EV). I understood how they derived ...
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44 views
Constant elasticity of substitution utility function to Cobb-Douglas [duplicate]
How to prove that constant elasticity of substitution utility function $u=(\frac{1}{\mid{M}\mid} \int_{i\in M}q(i)^{\frac{\sigma-1}{\sigma}}di)^{\frac{\sigma-1}{\sigma}}$ is the same as Cobb-Douglas ...
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28 views
Elasticity of Substitution and Taxation
So I am trying to understand the impact of the elasticity of substitution in terms of taxation. I am carrying this out for the U.S. by firstly estimating a two-input CES production function. Chirinko (...
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2answers
214 views
Income Elasticity of Demand vs. shift in demand curve
I've just read an econ textbook and want to verify a statement/definition about income elasticity of demand.
Changes in income shift the demand curve, and we can measure the responsiveness of demand ...
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1answer
248 views
Price elasticity and optimal pricing in a monopoly with zero marginal cost
I am having trouble understanding how to calculate the optimal price P for a good and understand the optimal price elasticity of demand in the following condition:
The firm is a monopoly seeking to ...
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1answer
360 views
Monopoly - Where is the Markup formula derived from?
Problem:
My lecturer wrote the marginal revenue formula before writing the markup formula, indicating some sort of similarity between the two.
How it was written on the board:
Market Power ...
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12 views
Can someone explain me the relation between effective demand in terms of wage-units and output elasticity?
I have been stuck in the next text. Can someone explain it to me? Thank you.
It is possible for effective demand in terms of wage-units to
increase when the output of an individual industry is ...
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1answer
818 views
Elasticity of Durable Goods vs Non-Durable Goods
Does anyone know any seminal reference (either a paper in a top economics journal or a book) that compares own-price elasticities of demand for durable vs non-durable goods?
My intuition tells me ...
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35 views
If there is no money illusion, can we calculate income elasticity of a commodity if we know all its price elasticities of demand?
I suppose we can't because we are not really aware about the proportion of income spent on that good and it's substitute goods but I'm not sure. What do you say?
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2answers
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How exactly does elasticity relate to slope?
My book (Goodwin's Microeconomics in Context, pg. 117) states the following about price-elasticity of demand:
Given two demand curves that go through a specific point on graphs with the same scale, ...
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1answer
163 views
CES production function application problem
I'm currently trying to do some estimations using the micEconCES package in R by Henningsen/Henningsen (2011). My issue is that I am not very familiar with R and I'm trying to implement my own dataset ...
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2answers
225 views
Is the law of demand violated in the case of perfectly elastic demand?
In the case of a perfectly elastic demand curve, when price rises the consumer is said to demand 0 units of the said commodity. However, graphically, even when price falls demand falls to 0. This ...
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9 views
Is the demand law violated in the case of perfectly elastic demand? [duplicate]
In the case of a perfectly elastic demand curve, when price rises the consumer is said to demand 0 units of the said commodity. However, graphically, even when price falls demand falls to 0. This ...
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1answer
25 views
Interpreting wedge between MP and wage
I am an econ master student and I need a bit of help understanding an issue, for my thesis. I have two related questions.
Assume a firm producing a good with labor and capital, $Y=F(L,\bar K)$. ...
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1answer
2k views
Intuition behind Engel Aggregation and Cournot Aggregation
Could anyone provide a possibly intuitive and friendly explanation to the Engel Aggregation $(\sum s_i \eta_i = 1)$ and Cournot Aggregation$(\sum s_i \epsilon_{ij} = -s_j)$? Here, $s_i = \frac{p_i,x_i}...
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1answer
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Interpretation: Elasticitity of Substitution [closed]
I have this production function:
$$P(x_1,x_2)=x_1+x_1*x_2$$
I am trying to find the elasticity of substitution, and I found this:
$$\sigma = -\frac{d \ln (\frac{x_2}{x_1})}{d \ln(\frac{x_1}{1+x_2})}...
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2answers
307 views
How to interpret Employment Elasticity in this text?
In this VoxEU text, «Promising ideas for future research on the employment effects of minimum wages », how do I interpret the elasticity of employment?
I would think of it as percentual change in ...
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1answer
62 views
Why are the formulas for price elasticity of supply and demand the same in intro microeconomics?
I get that they are both gauging responsiveness, but I don't particularly understand why they are the same formula.
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2answers
81 views
What's the term for elastic pricing?
What I've called "elastic pricing", has a true economics name that I believe I once heard.
Here's the notion:
I walked into a gas station to buy a fountain drink. I only brought a dollar with me, but ...
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1answer
61 views
How are elasticity of demand, marginal revenue, and total revenue connected?
I am completely new to economics, and am looking at some old exam papers. The question is as following:
"In a normal marked, where there is a negative correlation between quantity and price, which of ...
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2answers
46 views
Elasticity, link between demand and supply
I have a exercise with the corresponding answer, but i don't get it:
Suppose there's a better wheather this year and the size of the harvest of soy increased a 60%. The demand curve for soy did not ...
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0answers
23 views
Calculate Cross-Price Elasticity without Item 2 Prices held steady
Is it possible to calculate cross-price elasticity when both items prices are changing? Item 2's quantity is affected by both Item 1's price and Item 2's price.
...
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Elasticities and exponents
Given the following 3 equations:
$$
Y^*_t=100+3t \\
Y_t = Y_t^* (1+(0.2 (\sin t)) \\
B_t=B_t^* (1+(0.4 (\sin t)) \\
$$
And take B* to be the following, but is unknown:
$$
B_t^*= \alpha Y_t^* \\
$$
I'...
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3answers
3k views
Why is the Market-Clearing Price also an Equilibrium Price?
When the price is such that supply equals demand for e.g. bicycles, everybody who wants to buy a bike at that price gets one, and every bike gets sold. Everybody goes home happy and the marketplace ...
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2answers
246 views
Price optimization with demand forecast
I have one year sales data of a retail company and lets say I am forecasting the next month sales for the product. I have got the sales using time series in R. Now I want to forecast the price as well....
