Questions tagged [elasticity]
Elasticity is the measurement of how responsive an economic variable is to a change in another.
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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 ...
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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 ...
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47 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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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 $...
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1answer
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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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26 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 ...
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1answer
82 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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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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1answer
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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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1answer
45 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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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 ...
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34 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 $Q_D$ ...
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1answer
35 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{...
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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:
...
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1answer
53 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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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
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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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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
38 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
73 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 ...
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1answer
34 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 ...
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1answer
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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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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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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 ...
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18 views
Supply elasticity of finite (non-renewable) resources
What is the elasticity of supply of a finite (non-renewable) resource that cannot be replaced (i.e. fixed stock)? Intuitively it seems like it should be inelastic, yet I can also reason elastic.
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33 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?
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Can the effect of different prices of gasoline at different gas stations be measured?
I am looking for studies in which the effect on demand of different prices of gasoline at different gas stations in the same area is measured or estimated (on the same day or hour).
This question ...
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1answer
21 views
How to maximize total revenue on constant elasticy curve
So to maximize total revenue, we sell at the price on the demand elasticity curve where elasticity=1 right? Lets say on one curve, the elasticity throughout the curve is equal to 1.5? How much should ...
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2answers
51 views
Price Elasticity of Demand - elastic demand and impact of price reductions on total revenue
A question in relation to Price Elasticity of Demand.
My understanding is that when demand is elastic, a price reduction will increase
total revenue.
If the price of a product changes from \$100 to \...
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Market structure determination
I will be conducting a research about the market structure of an outdoor farmers market. I wanted to know what kind of survey questions could help me for example to determine the PES of the market or ...
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Why income elasticity of demand of luxury good in greater than 1?
According to textbook and wikipedia, "if income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a ...
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elasticity of income if price changes by 10 percent
Arista always spends 10
% of her income on whatzits. Assume that her income increases by some percentage while the price of whatzits remains constant (and that all whatzits cost the same). What is ...
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Does recent gasoline price sensitivity data show that HR 763 Carbon pricing insufficient for the transportation sector?
Does recent gasoline price sensitivity data show that HR 763 Carbon pricing insufficient for the transportation sector?
This answer provided by: "Heh" moved to chat so it can't be seen:"Of course ...
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Proof coefficient in log-log model is equal to coefficient of elasticity
I am trying to see how we treat $\varepsilon$ in the following proof:
Suppose we have a log-log single variable regression model
$$ \ln(y) = \alpha + \beta \ln(x) + \varepsilon $$
then take partial ...
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Simple question on interpretation of elasticity
I am doing a multivariable calculus course and found elasticity interesting. The formula for percentage change with elasticity is
$\LARGE\frac{\frac{\Delta y}{y}\large\cdot100}{\frac{\Delta x}{x}\...
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How high of a carbon fee would reduce global emissions by 50% in 15 years?
OVERVIEW OF THE EMF 32 STUDY ON U.S. CARBON TAX SCENARIOS
https://www.worldscientific.com/doi/pdfplus/10.1142/S201000781840002X
About half of the EMF 32 models met a 50% reduction in carbon ...
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Is oil supply really inelastic in the short term
Is oil supply really inelastic in the short run?
Though it remains evident that in the short run, the known capacities of oil can't be increased and hence we can assume that there remains a upper cap ...
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Elasticity of substitution
So, this is an economics question but the problem I have is a pure math problem I guess. So I have the following equation:f(x,y)
this function have the elasticity of substitution(EOS): 1/(1-beta). a,...
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1answer
175 views
Confidence Intervals for Elasticity in Simple Linear Regression
I'm pretty sure this is a very simple question that I am missing something obvious. I have a simple linear regression with multiple independent variables. I want to calculate the elasticity (no ...
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1answer
73 views
Mathematical framework for modelling the relationship between price and sales of a product
In my job as a data scientist, I am required to model the relationship between the price of a product and the sales or number of unit sold. I am trying to build a simplistic model, the assumptions of ...
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1answer
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(Microeconomics) Why must fims always lower prices when there is excess supply?
This may seem like a basic question but it has been really bothering me for a while. I understand what excess supply is, and my question is regarding the firms' response to it.
All economics texbooks ...
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How to simulate changes in quantity demanded when several prices change?
I am not sure if this is a straightforward question or not. Basically, I have a set of products along with their prices and quantities demanded. I also have own and cross price elasticities for each ...
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1answer
32 views
Effect of a change in quality on price elasticity of demand
I am interested to know how one would expect a change in the quality of a product to affect its price elasticity of demand. Two example will illustrate my confusion:
Example 1
Suppose a producer is ...
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1answer
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Why is elasticity not constant on a straight line graph?
There are different zones of elasticity on a graph, but if we are to imagine a negatively sloped, straight line on a price v quantity graph, we find that elasticity differs based on where we look on ...
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230 views
Constant elasticity proof for log-linear demand curve
From Perloff 2008e solved 2.2:
Q: Show that the elasticity of demand is a constant e if the demand function is log-linear, ln Q=ln A+e ln p.
A: Differentiating with respect to p, we find that (dQ/dp)/...
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1answer
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How do you use a Log-linear model when you have negative Xs?
I am trying to us a Log-linear model to derive an elasticity. However, some of my Xs are negative numbers. Being as the model relies on the natural log of the Ys and the Xs, how can this model work ...
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2answers
283 views
If $X$ is a Giffen good then $Y$ must be a normal good
While going through some problems as part of self-study I encountered the following True/False question:
Q. Steven only consumes two goods: $X$ and $Y$. If $X$ is a Giffen good for Steven, then $Y$ ...
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1answer
481 views
How does one do a hypothesis test for elasticity?
Given the regression output
$$\widehat{\ln cons} = \underset{(0.6018)}{0.4054} + \underset{(0.0744)}{1.2739}\, \ln m - \underset{(0.1902)}{0.6666}\, \ln p_1 -\underset{(0.2645)}{1.6146}\, \ln p_2$$
...
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Can there be a good which has both Hicksian and Marshallian demand curves vertical?
Consider a perfectly inelastic (Marshallian) demand curve for a good X. Does this good also have a vertical Hicksian demand curve?
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Unitary Elasticity Of Demand Question (PED=1) [duplicate]
So I was having a bit of trouble reasoning with the answer for this particular PED question. It goes like this:
PED=1, Quantity Demanded=4,000 units when Price=$12
The question was:
Find the price ...
