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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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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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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 ...
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350 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....
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999 views

Link between elasticity and marginal utility

The above is taken from "Economics" 8th Edition by John Sloman, a textbook commonly used at the introductory undergraduate level. I would like assistance in understanding the bracketed portion - how ...
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99 views

Clarification about demand elasticity and monopoly

I am having a difficulty understanding certain things about elasticity and would like to clarify them. What I understand. Elasticity is the percent change in quantity due to a percent change in price,...
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175 views

Finding “own” price elasticity of demand

Only two groups buy the Dripfix, abbreviated as good $D$. Group 1's demand function for the Dripfix is $f_1 (p_D)=300-p_D$, where $p_D$ is the price of Dripfix. Group 2's demand function is $f_2(p_D)=...
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430 views

price elasticity: Linear regression low r square

I faced an interview question for a job where interviewer asked me suppose your r square is very low (between 5 to 10%) for a price elasticity model. How would you solve this question? Anything that ...
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1k views

How to maximize revenue by changing price?

I run a SaaS and I have the following data from it: Number of trials (A), number of subscribers (B), subscribe cost (C) and total revenue (D) for every type of service my SaaS provide. If I increase (...
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Explanation of differential equation for Price Elasticity of Demand

I understand that Price Elasticity of Demand (PED) measures the percentage change in quantity demanded of a good with respect to a percentage change in its price. However, I don't quite understand ...
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38 views

Does this price elasticity depend on p?

I'm studying for a test I have this week and a practice question asks whether or not the price elasticity of demand for the demand function $\ q = Ap^{-x} $, where A and x are positive constants ...
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331 views

Help with CES Utility Function exercise

I am attempting to solve the following CES Utility Function problem: However, I am running into issues when I get to 3). For 1) I have $K = \left(\frac{\omega p_1}{p_2}\right)^{\frac{1}{p+1}}$ ...
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Is there any work on equality in a market versus friction?

This is a question about educational economics. There is a phenomenon when studying countries like the USA and Chile (that have implemented voucher systems) that reducing the friction in a "...
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379 views

Oligopoly kinked demand graph doesn't make a sense to me

Hello, so in class I learned about the kinked demand curve in oligopoly. Our teacher said that under the sticky price, the demand is inelastic. However, I don't understand how the demand can be ...
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574 views

Ranking products according to Price Elasticity Of Demand

Assuming ceteris paribus conditions, rank the following products in order from the most price elastic to the least price elastic. Explain why. Ice Cream Peter’s Chocolate Ice Cream Chocolate Ice ...
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2k views

What affects the interest elasticity of investment?

Firstly, my understanding of the interest elasticity of investment (IEI) is that it is the responsiveness of investment to changes in interest rates. As a result, I can think of one reason why the IEI ...
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Can Linear Supply-Demand Equilibria Be Understood as a Feedback-Control Process?

I'm not an economist, but rather an applied mathematician working in control theory. I've recently been watching Berkeley's intro to econ course in a personal project to better understand economics ...
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Addressing endogenity in price elasticity and the Promotion Optimization Problem

I have data on purchases gross prices discounts (like coupons) net prices (i.e. gross price - discounts) number of leads (potential customers at any given time) conversion rates (# purchases / # ...
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How much does one percent of unemployment 'cost'? (Unemployment elasticity)

There is always debate that increasing minimum salary will pour in more money into the budget as those who get minimum salary will spend them immediately. The counter argument is that increasing ...
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1answer
186 views

Intuition for the CES consumption index in New-Keynesian DSGE models

I don’t understand, from an intuitive point of view, the CES aggregator in the context of a New Keynsian DSGE model. I understand that the consumption index Ct is the sum of all consumption goods and ...
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Why does the US have such low price flexibility?

I am speaking only from an observational point of view and don't have any experimental data to back-up my observations so feel free to correct me. Why does the US appear to have a market that does ...
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Does a good depend on it's equilibrium price to be considered elastic/inelastic?

I'm a first year economics student and completely new to economics. I am working my way through introductory microeconomics but having trouble with elasticity. Mainly the part about price elasticity ...
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233 views

Very elastic supply + very inelastic demand

Suppose we have a very elastic supply curve and a very inelastic demand curve. Further suppose there is a decrease in input prices which shifts the supply curve outward. By taking an extreme ...
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2answers
36 views

Inelastic offer, tax paid by seller, who supports the charges

I have a small problem, I have a situation where we have a perfectly inelastic offer and a normal demand, then there is a tax that is paid by the supplier who supports the totality of the charges ? Is ...
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79 views

own and cross elasticity for many products

This publication uses this formula to fit a model to predict the demand of a product A: ...
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605 views

study question: change of Expenditure in terms of price and quantity

I am learning the Economic class and I have a very specific question regarding a basic economic concept: change of expenditure in terms of change of price and change of quantity. I'v learnt below: <...
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584 views

Why two goods are of different types of Cross Elasticity if we swap them in formula?

I am using this formula for calculating Cross elasticity of demand: $ E_{XY}^D = \Large\frac{(Q_2^X - Q_1^X)(P_2^Y + P_1^Y)}{(Q_2^X + Q_1^X)(P_2^Y - P_1^Y)} $ If $E_{XY}^D$ > 0 Then goods X and Y ...
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Why are elasticities defined as logarithmic derivatives?

In my economics class, we often compute the elasticity of $Y$ with respect to $X$, $$\eta = \frac{\partial \log Y}{\partial \log X}.$$ You can compute this from the slope of a line fit to a log-log ...
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Verifying the constant elasticity of the demand model Q= aP^b

"It is well known" that the elasticity of $Q$ relative to $P$ is the constant $b$ in the equation $Q(P)=aP^b$. We can verify it using the convenient definition of elasticity $= \frac{dQ}{dP} \frac{P}{...
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As elasticity moves from negative to less negative, this causes prices to increase and profits to increase

Is there an intuitive way to understand why this is so. I want this explained in a layman's terms. I know negative means they are inversely related, which is what you would expect most items to follow....
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315 views

Short term and long term price elasticity of currencies

If I have 1% of the world supply of US dollars, and I decide to sell all of them to buy Euros, how much should I expect the exchange rate to change? Is there some kind of empirically determined price ...
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166 views

How does an elastic Money Demand affects the effectiveness of fiscal policy?

From my notes: 'The elasticity of Money Demand reduces the impact on the interest rate of the increase in government spending...' My question is: if the Money Supply is inelastic, the elasticity of ...
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202 views

Is perfectly inelastic demand always coupled with inelastic supply?

In the case of perfectly inelastic demand, the price is always infinite. Does it mean that the supply curve is also inelastic?
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340 views

How to interpret income elasticity of demand

My question: Income elasticity of demand for apple is $\gamma$. Cross elasticity of demand between apple quantity and orange price is $\psi$, What is the impact on apple's revenue if consumers'...
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275 views

Usefulness of the value for the slope of the demand curve

I see the elasticity value(s) of demand being used frequently to determine the relation between demand and variables such as price and income. I have however been unable to find any uses for the slope ...
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Why am I getting 3 different answers for Point Elasticity of Demand?

First year Econ. Question: Demand function: $P=50-4Q$ (Price in cents/kilo) Supply function: $P=25+Q$ Equilibrium Price and Quantity: 30 cents, 5 kilos. Price change: 40 cents, 2.5 kilos. I've ...
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254 views

Income Elasticity of Demand for Higher Education

My model has been given as: $$\ln (H_ed) = 18.08 - 0.53\ln Pop -2.01 \ln Distance + 0.47\ln RGD $$ Where (Hed) is higher education, pop is population, and RGD = Real GDP per capita. I have been ...
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384 views

Estimating elasticity of substitution in nested CES functions

I have aggregate data on $L_t, K_t$ and $X_t$, and want to estimate elasticity of substitution parameters, $\gamma$ and $\sigma$ for these factors. Assuming the production function takes the following ...
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159 views

Calculate Elasticity of demand in this example [closed]

Suppose that house prices increase by 10%, and the total quantity of homes purchased decreases by 8%. What is the elasticity of demand of housing? Interpret your answer in the context of a 1% change ...
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How do I calculate price elasticity of demand using historical price and quantity data?

I work for a company that produces retail items and I am tasked with calculating the price elasticity of demand for a subcategory that shall remain unnamed. I have 5 years of monthly market data that ...
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25 views

Time affecting price elasticity of supply

I'm given to understand that the supply of any product at one moment is fixed regardless of the price but on the long run the firm could produce more of the product and so the supply become more price ...
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1answer
1k views

What statistical techniques can be used for measuring price elasticity

I know that linear regression is used for calculating price elasticity. If my objective is to estimate the parameters of a causal relationship, can i use machine learning techniques like Random Forest ...
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1answer
22 views

Best formula for price depending on amount [closed]

What is the best formula of price of the product depending on amount. I mean "best" in psychological, marketing, stock rotation, profit maximizing, etc sense (any of them or all together, if possible)....
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1answer
86 views

Question on significance of different ways of measuring Price Elasticity of Demand

I'm a pre college student, self studying economics, I have a question regarding the different forms of measurement of Price Elasticity of Demand. The basic equation for PED with respect to a point $(...
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145 views

About intertemporal elasticity of substitution

The inter temporal elasticity of substitution between two periods of time is $$\sigma=-\frac{d[\ln(c(s)/c(t))]}{d[\ln(U'(c(s))/U'(c(t)))]}$$ I need to prove that $$\lim_{s \to t}\sigma = -\frac{U'(c(t)...
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282 views

Which regression technique is used for calculating price elasticity in practice

Since we need to consider 'Endogeneity' between price and quantity while calculating price elasticity and since linear regression cannot handle the phenomenon of endogeneity if objective of the model ...
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179 views

Price Optimization from Data

How can I find the optimal price that maximizes profits, given past sales data? I thought I could do this, but I've been running into problems. Data: ...
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467 views

Price elasticity when relationship between sales, price and other factors is not linear

For commercial deployment, price elasticity is calculated through linear regression which assumes that there is a linear relationship between price and sales. I have a)price and b)social media ratings ...