Questions tagged [elasticity]

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

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Price Elasticity of Demand for Positive Price Increases

What does it mean when the price elasticity of demand %Qd/%P is greater than one? Typically I hear that it means the demand is elastic since if, say, the price decreases by 1% the demand for the ...
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Elasticity of demand equals -1 but income decreases!

In my textbook, it's stated that: When $\epsilon < -1$, demand is elastic and raising price will result in smaller income, while lowering price will result in bigger income. When $\epsilon =...
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Intuition: Difference in price elasticities of demand due to different bases

Source: pp 91-92, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw If you try calculating the price elasticity of demand between two points on a demand curve, you will quickly ...
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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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What are Giffen Goods?

What exactly are Giffen goods and are they of purely theoretical interest or has there been empirical evidence of their existence?
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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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2answers
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How to estimate empirically a demand curve

Suppose I have a small business that sell ice creams. An Icecream cost 2$, and every day I have different values of sales. ...
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Econometrics: Is elasticity meaningful in my, or any, regression?

A few months ago I interned at this organization; and, as a going away present, I decided to spend my last week, with whatever off time I had, to investigate the factors that affect teacher salaries. ...
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How is price elasticity determined in practice?

Price elasticity of demand and Price elasticity of supply are two of the most important concepts of microeconomics, but they're generally explained from a hypothetical standpoint, and little effort is ...
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760 views

Calculate the elasticity of substitution of Epstein-Zin preferences

$$ \newcommand{\E}{\mathbb{E}} $$ Let a consumption sequence be given $C=(C_0, C_1,...)$ and let $C_t^+ = (C_t, C_{t+1}, ...)$. Now, suppose I have Epstein-Zin preferences, \begin{align*} U_t(C_t^+) &...
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What determines the outcome of a price war, and why isn't that outcome reached instantaneously?

Mary is making a hefty profit manufacturing and selling widgets. Jim has some money laying around and he is trying to figure out if he shouldn't start manufacturing some widgets too. In this example ...
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1answer
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Generalized KPR: Frisch Elasticity

Consider the following version of KPR preferences (with $l$ being leisure): $$ U(c,l) = \left(\left(c\right)^\gamma l^\omega\right)^{1-\sigma}$$ I'm after the Frisch elasticity: $$ \frac{\partial(1-...
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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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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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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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If one always spends the same amount, what's one's price elasticity of demand?

Source: p 109, Question 5.9, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw = Question 5.7, Principles of Microeconomics, 4 Ed, 2008, by N Gregory Mankiw 9. $\color{green } { \text { ...
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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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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}...