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Questions tagged [elasticity]

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

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Proof for homogeneity of elasticities

Throughout microeconomic literature i see the following restiriction placed on the nature of elasticities in demand system estimation. This being for some arbitarary good $x$ we require price ...
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23 views

Price and cross price Elasticity of demand [closed]

The question is: Prove or disprove, if the price elasticity of a demand of a good is unitary then the cross price Elasticity of demand of that good is zero. Any hints on how to approach this?
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Price elasticity on comparison website. How to calculate price elasticity using the coefficient of the products position on site?

I am looking at the following paper. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages ...
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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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30 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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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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24 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
41 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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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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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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Low capitalist savings rates [closed]

Negative capitalist savings rate in the 30s, does this refute stimulus
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47 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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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
167 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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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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572 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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42 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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296 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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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
80 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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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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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
371 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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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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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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66 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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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
277 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
386 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
697 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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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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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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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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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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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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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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1answer
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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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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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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
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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
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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
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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
69 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
49 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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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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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 ...