Questions tagged [elasticity]
Elasticity is the measurement of how responsive an economic variable is to a change in another.
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Elasticity and logarithms
Let's consider a relationship between $ y $ and $ x $, $ y = a x^b $. Taking log on both sides, we have $$ \log y = \log a + b \log x $$
Now, my textbook, Nicholson and Snyder's Basic Principles and ...
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Supply elasticity on a piece-wise linear supply function
The supply elasticity at a point is the willingness to produce more or less after the price has changed (due to whatever reason?).
$$\mu_{Q,P}=\frac{\partial Q_S/Q_S}{\partial P/P}=\frac{\partial Q_S}...
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Elasticity of substitution between leisure in two periods
This is a basic question, but I am new to macro models. The question is from Romer's text.
Assume a household only has one member and has no initial wealth, and the household lives for two periods. ...
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1answer
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Monthly price elasticity and possibility of using daily values
I am calculating the price elasticity as a starting point to find a theoretical optimal price that would maximize our revenue.
I am looking at 2 years data and to use the price elasticity formula, I ...
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Assess the significance of the price elasticity of demand and supply in determining the size of oil price increase [closed]
Assess the significance of the price elasticity of demand and supply in determining the size of oil price increase.
(10 marks)
2. Determine (a) the price elasticity of demand for oil; (b) the income ...
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1answer
28 views
Elasticity of Supply for a Monopolist
Is the supply of output for a monopolist less elastic than that of a perfectly competitive firm with the same production function?
On one hand, it seems impossible to calculate the elasticity of ...
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0answers
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primary impact on real estate prices/taxes
Are my housing prices/taxes more influenced by the $40M beach house a few miles away from my home or those in the lower-class well beyond my county line?
Assuming a few basics:
there are differing ...
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1answer
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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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2answers
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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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47 views
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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1answer
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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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1answer
25 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
44 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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1answer
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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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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
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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
186 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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1answer
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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
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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
323 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
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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
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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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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
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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
415 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
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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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1answer
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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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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
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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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2answers
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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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1answer
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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.
