Questions tagged [elasticity]

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

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11k views

How does one derive the elasticity of substitution?

For two goods $x$ and $y$, the elasticity of substitution is defined as $$\sigma \equiv \frac{d\log\left(\frac{y}{x}\right)}{ d\log\left(\frac{U_x}{U_y}\right) }= \frac{\frac{d\left(\frac{y}{x}\right)}...
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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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1answer
37 views

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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108 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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2answers
113 views

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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2answers
588 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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2answers
51 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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18 views

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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27 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
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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86 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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3answers
562 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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9 views

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
35 views

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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14 views

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 ...
5
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2answers
3k 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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1answer
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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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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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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21 views

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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3answers
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Why absolute value in elasticities and marginal rate of substitution?

This is a point I find very confusing and very hard to justify to students. Depending on the books, one finds many different conventions regarding the sign of elasticities and marginal rate of ...
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1answer
19 views

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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19 views

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
39 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 ...
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2answers
74 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
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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 ...
3
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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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62 views

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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2answers
71 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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25 views

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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19 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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33 views

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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11 views

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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0answers
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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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1answer
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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
52 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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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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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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1answer
61 views

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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1answer
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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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2answers
318 views

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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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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58 views

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
183 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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14 views

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 ...