Questions tagged [elasticity]

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

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41 views

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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1answer
700 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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790 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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1answer
3k 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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2answers
145 views

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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0answers
59 views

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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0answers
35 views

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
230 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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0answers
24 views

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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2answers
391 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
38 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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1answer
92 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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1answer
965 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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1answer
906 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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4answers
8k views

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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2answers
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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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1answer
53 views

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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1answer
432 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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1answer
214 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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1answer
289 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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1answer
400 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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1answer
407 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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1answer
157 views

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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1answer
296 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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1answer
514 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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1answer
165 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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1answer
5k views

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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0answers
27 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
23 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
122 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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1answer
155 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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1answer
354 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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1answer
226 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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1answer
672 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 ...
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1k views

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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1answer
1k views

If the Engel Curve of a Cobb-Douglas utility function is positive and linear, than does that mean it is neither a necessity nor a luxury good?

Since the concavity of the Engel Curve determines whether it is a necessity or luxury (i.e. how fast quantity demand changes in relation to changes in income), and since the second derivative of a ...
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2answers
223 views

How would you calculate the Price Elasticity of Demand if the Prices are constant, given that there is change in quantity demanded?

I have data that I have collected suggests that the prices are more or less constant throughout the month whereas the quantity demanded changes on a day to day basis. Recalling the formula for PED, we ...
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1answer
240 views

Elasticity of substitution in Jehle and Reny Advanced Micro (3rd ed) exercise 3.8

Letting $f_i(\mathbf{x})=\partial f(\mathbf{x})/\partial x_i$, ($\mathbf{x}$ is a vector, a commodity bundle, and $x_i$ is a scalar, commodity $i$ in the bundle) show that, $\sigma_{ij}(\mathbf{x})\...
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1answer
2k views

Electricity as inelastic good

Could be electricity considered as an inelastic good? I am interested in the electricity delivered to final consumers in member countries of Nordpool Spot (Norway, Sweden, Finland, Denmark, Estonia, ...
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2answers
1k views

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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1answer
440 views

Mathematical Proof as to why does the total revenue increase when the prices are increased for an inelastic product? [duplicate]

I was recently reading up on the Price Elasticity of Demand and the section of Inelastic demand mentions that if a firm has inelastic demand for its product and wishes to increase its total revenue ...
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1answer
485 views

Demand Curves for Stocks

i am currently working on a paper on demand curves for stocks and have some questions. I've read that many models (CAPM, APT, Modigliani-Miller theorem) assume demand curves for stocks to be flat. Can ...
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1answer
65 views

Is it sufficient to conclude by looking the following weekly demand schedule that the good is Perfectly Elastic?

The following is the demand schedule for cement over a period of one week:- NOTE: I have written the Price and Quantity demanded in tuples of the following form (Price, Quantity). So in the first ...
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1answer
328 views

Change in price and income using the Slutsky equation

Quantity bought is given by $$ q(m,p) = 0.02 m - 2 p $$ where $q$ is number of bottles bought, $m$ is income and $p$ is price per bottle. If income is $m = 7500$ and price is $p = 30$, the number of ...
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2answers
723 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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1answer
54 views

Does the law of supply reject rise in total revenue for goods with elastic demand?

If demand for a product is elastic( consider the case when the price is low ), lowering the price further increases total revenue. However, as per the law of supply, low prices cause suppliers to ...
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2answers
3k views

Does unit elasticity has to be at exactly the middle of the demand curve?

Can unit elasticity be anywhere else on the demand curve other than the midpoint?
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2answers
81 views

Why is the Supply of Labour More Elastic in a Single Province/State then it is in the Country as a Whole?

Apparently, the federal government has a greater ability than provincial government to increase tax revenues by raising tax rates because the supply of labour is more elastic in a single province than ...
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1answer
109 views

Empirical set-up for measuring elasticity with respect to quality in an environment without price

I want to answer the broad question: In the absence of prices, how are decisions made? I have data on the determinants of market share in an environment without prices. So, imagine, person A chooses ...