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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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Elasticity when the demand function is given

Given the demand function, $ q = kp^{-\epsilon} $, how do I calculate the elasticity? As a result, I do know that the elasticity when the demand function is in this form is $ - \epsilon $. But I'd ...
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How to calculate Store/Category level Price elasticity?

I would like to compare different retail stores at category level using the percentage change in the category volume produced by a uniform 1% increase in the prices of all items in the category. What ...
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1answer
25 views

How to Calculate Price Elasticity of Demand When Perfectly Elastic?

When we have perfect elasticity, the demand curve is a horizontal line and the elasticity of demand coefficient is equal to infinity. How do we arrive at a solution equal to infinity? We know that ...
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Exploratory analysis about elasticity

I have been asked to perform some studies about the price elasticity of demand of an online seller. The concept of elasticity used by economists are more clear to me after some research on ...
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37 views

Elasticity of employment in respect of reduction of working time

If elasticity of employment in respect to working hours is positive then work time reduction decreases employment and the opposite is true if elasticity is negative? I mean if I want to see how ...
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Calculating Demand curve function from Elasticity of demand, price per quantity and quantity purchased?

For an assignment I have to model the demand function and find consumer surplus based upon elasticity of demand, price per quantity and quantity purchased. Ill copy and paste the assignment below and ...
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25 views

Demand Curve Price not perfectly elastic

I'm trying to make the argument that our Sales go up when prices for all our Products are 30% off. Which I believe should be our new Regular Price. but our Demand Curve doesn't support this. Should I ...
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17 views

Increase of price of good and effect on elasticity of demand

Price elasticity of demand of good A is 1.20. If we increase a price by 15% what will happen to quantity demanded of good A? My answer is 18% increase since % change in Q = 1.20 * %change P Is this a ...
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35 views

What's an example of a resource, raw material that has become scarce?

I'm interested in the elasticity price demand that predicts that as a resource becomes more scarce, it gets more expensive. Regarding oil price this isn't clear. Is there an example of a resource ...
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Falcons making more profit with cheaper prices: Did McCay mean 60% rather than 16%? Or is it a PR stunt? Or what?

In a recent CBS segment prefacing the SuperBowl (https://www.youtube.com/watch?v=GRuTxJMWiTg), it is argued that by lowering the price of concession food, the Atlanta Falcons not only made their fans ...
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52 views

Should Company B enter the market in the following cases

Say Company A has a monopoly producing product E, at a constant marginal cost of $3$ USD. Say the ideal number of units produced is $1$ unit which produces a profit of $2$ USD (=$P_{A}$). Next, ...
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Is there a possibility to have an inferior good (x) in a utility function where x & y have 0 cross elasticity?

A question I got on an exam that I think I messed up on: If we have cross elasticity of 0 (x & y are independent), can x be an inferior good? I answered with a yes. Am I wrong?
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Economics elasticity question

What is the relationship between goods A and B? Calculate the relevant elasticity under the following demand function: Qd = 1200-6P+.5M-10L+4T+2R+3N (GOOD A) P = 6, M=40000, (GOOD B) L=20, T=8, R=2, N=...
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How to do elasticity modeling for products where there is slab pricing like electricity?

I have few product categories eg prod1 prod2. Each category have similar products. So prod1 has 3 similar products with slight difference in features and prod2 has 5 products with slight differences. ...
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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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46 views

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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46 views

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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1answer
36 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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15 views

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
79 views

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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30 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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55 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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33 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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1answer
33 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
53 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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1answer
80 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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27 views

Low capitalist savings rates [closed]

Negative capitalist savings rate in the 30s, does this refute stimulus
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1answer
40 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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240 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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1k 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
48 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
487 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
84 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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1answer
485 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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2answers
318 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
520 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
944 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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1answer
1k 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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2answers
244 views

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
210 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
401 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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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}...