# Questions tagged [elasticity]

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

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### Why do lumber prices soar but cost of gypsum does not drop?

The cost of lumber has increased 3 fold over the last year, whereas the cost of other building materials such as gypsum has hardly budged. In North America, lumber is a dominant material used in the ...
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### Can an inferior good be necessary?

Usually the definition of necessary goods is the income elasticity between 0 and 1. But can a good with -0.5 income elasticity be considered necessary? There is this link that says that all the ...
2answers
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### Is it true that for Cobb-Douglas preferences, the demand function is always iso-elastic?

As we know that $Q*P=const.$ for Cobb-Douglas preferences, we can thus conclude that $\frac{dQ/Q}{dP/P}$ is always $-1$: $$QP=const. \implies 0=d(PQ)=Q\ dP+P\ dQ \implies \frac{dQ}{Q}=-\frac{dP}{P}$$...
1answer
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### How do I determine PED from price consumption curve with slope of zero?

Given a budget for two goods $x_1$ and $x_2$, a fixed price for good 2 and three prices for good 1 with the corresponding optimal amount of good 1 ($x_1$), I like to calculate the PED for good 1. By ...
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### Without knowing the Slutsky equation and income/substitution effect, how can I show a certain good is inferior or Giffen?

Say I've got a function $x_1(p_1,p_2,m)$ where $p_1, p_2$ are the prices for good 1, good 2 respectively and m is the income. Now, I haven't heard of the Slutsky equation yet nor the income/...
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### Elasticity of demand

I'm reading a paper from Pindyck (1988) where $$P_t=X_t-\gamma Q_t.$$ $P_t$ is the price, $X_t$ is the demand state variable, $Q_t$ production and $\gamma\geq0$ is apparently the ''(constant) demand ...
0answers
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### Are economic profits above normal for many firms in a perfectly-competitive increasing-cost industry?

In a perfectly-competitive constant-cost industry, all firms will have normal profits in the long run. This fact is very clear to me as the long run supply curve is perfectly elastic and hence each ...
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### What does the following mean: "supply has positive elasticity”?

What confuses me in particular is that I always thought of the concept of ‘elasticity’ with respect to something. That is, supply of x can be elastic with respect to y. Am I missing something?
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### Why does short run market supply become more elastic with more firms

I have heard a justification along the lines of this: The supply curve becomes flatter (more elastic) with more firms in the market, because a given increase in price calls forth more production when ...
1answer
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### Solving problem for optimal price (maximize profit) *attempt inside*

Let a demandfunction be defined as $D(p)=B-bp$, where $b,B>0$. A firm has some production cost, $c$, and can set the price $p$ under the constrain given by the Demand. What is the optimal price? ...
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### Do barriers to entry increase the (collective) market power of incumbent suppliers?

For example in the case of the labour market lower immigration means that low-skilled labour can ask higher wages or better conditions (other things equal). Low skilled labour may have even put the ...
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### How can I formulate price elasticity of demand equation when I want to add cross price elasticity?

I am trying to calculate the price elasticity of demand for a product where I used the equation log(volume) = elasticity * log(price) + seasonality dummies + trend index + CPI Here CPI is the consumer ...
1answer
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### Elasticity of intertemporal sustitution with composite CRRA function

In the usual CRRA $\frac{c^{1-\sigma}-1}{1-\sigma}$ function we have that the intertemporal elasticity of sustitution $\partial\frac{c_{t+1}}{{c_{t}}{\partial r}}$ is $\frac{1}{\sigma}$. But how can ...
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### Examples of bounded, positive, inverse demand curves

The three most common examples of demand curves I am aware of are \begin{align} Q&= b - aP,\\ Q&= bP^a,\\ Q&= b e^{-aP}\\ \end{align} The first being our classic linear demand curve, the ...
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### Price elasticity of demand of CES

Anyone would like to help me show the following ( or a book/paper reference would be a great help) " The price elasticity of demand is equal to $\sigma$ for the demand function of CES preference,...
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### Is saying that the demand is elastic or inelastic too oversimplified?

As we know that elasticity varies from infinity to zero as we move along a linear demand curve, then is it correct to label any demand curve elastic or inelastic as a whole?
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### Microeconomics undergraduate ELASTICITY help (differentiating log-linear demand curve) [closed]

How do you show that the price elasticity of demand is a constant if the demand function is log-linear? To show this, how do you differentiate the log-linear demand curve to determine dQ/dp, and ...
1answer
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### Log log regression with fixed effects and cross elasticity of demand

I have a time series of units sold, and price. I'd like to calculate elasticity of demand wrt to price and a few other variables, some of them are fixed effects. ...
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### What is the empirical price elasticity of demand for insulin?

A lot of textbooks say that demand for insulin is perfectly inelastic. I don’t think this is quite true (and I am a type 1 diabetic). It’s clearly very inelastic, but not perfectly so. There are ...
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### Regression approximation for the rate of change in occupancy rate of residential market with respect to price

I have historical data on occupancy rates for a given neighborhood, along with characteristics and other local economic variables. I am looking to estimate the regression equation with occupancy rates ...
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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 ...
2answers
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### 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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### 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. ...