Questions tagged [elasticity]

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

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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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67 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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149 views

Why does price drop as a result of increase in supply

According to the Law of Supply, if price increases, there is an incentive for producers to produce more, and therefore the quantity supplied increases. However, for an inelastic good, if there is a ...
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128 views

Composite Elasticities

Consider the following composite function $$ \lambda(\theta(J)) $$ If you want to think about it in more economic terms, think about it how values of firms $J$ affects market tightness $\theta$, and ...
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124 views

How does elasticity impact market efficiency?

I am wondering how the price elasticity of demand (or supply) impacts market efficiency. A more specific question - can we say that in a monopolized market elasticity will be low, and that in a ...
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926 views

Marshallian demand curve elasticities [closed]

I am stuck on a multiple choice question that came up on a Micro university past papers. The question is: Marshallian demand curves derived from utility function: $U = log(x) + log (y)$. What is ...
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194 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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841 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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2k 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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51 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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528 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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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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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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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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382 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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701 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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244 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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55 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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603 views

How to show that the income elasticity of Marshallian demand is equal to unity? [closed]

Suppose that the expenditure function is multiplicatively separable in $\textbf{p}$ and u so that $$e(p,u) =k(u)g(\textbf{p}),$$ where k(·) is some positive monotonic function of a single variable, ...
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159 views

Relationship between Revenue-Elasticity and Price-Elasticity

I have attempted to solve this problem and would be grateful if someone looked over my solution 5% increase in price results in 5% decrease in total revenue. I need to determine price elasticity of ...
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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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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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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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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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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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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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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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Can there be a good which has both Hicksian and Marshallian demand curves vertical?

Consider a perfectly inelastic (Marshallian) demand curve for a good X. Does this good also have a vertical Hicksian demand curve?
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Supply elasticity on a piece-wise linear supply function

The supply elasticity at a point is the willingness to produce more or less after the price has changed (due to whatever reason?). $$\mu_{Q,P}=\frac{\partial Q_S/Q_S}{\partial P/P}=\frac{\partial Q_S}...
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primary impact on real estate prices/taxes

Are my housing prices/taxes more influenced by the $40M beach house a few miles away from my home or those in the lower-class well beyond my county line? Assuming a few basics: there are differing ...
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73 views

Demand Elasticity, Factor Substitution: Independent?

Given $ Y=f(K,L;\sigma) $, the effect on labor from a change in the price of capital can be gauged through a substitution effect and a scale effect: \begin{align*} \frac{\partial L}{\partial r} & ...
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40 views

Elasticity of Substitution between 2 factors, without knowing relative prices

I'm trying to figure out the elasticity of substitution between input $s$ and input $v$. I know that the marginal rate of substitution between these two inputs are $\frac{v^2}{s(v+k)}$, where $k$ is ...
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Low capitalist savings rates [closed]

Negative capitalist savings rate in the 30s, does this refute stimulus
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PED and change in revenue

Ok so I was arguing with my teacher about this one question: Based on the price elasticity of demand coefficient determine whether the price should be increased or decreased for revenue to increase. ...
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Elasticity of substitution meaning

If I computed an elasticity of substitution of f.e. 0.9 between capital and labour, does this implicate that the factors are rather well substitutable or not? Since for 0 they are perfect complements ...
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Raising the elasticity of substitution in an economy

Papers such as de la Grandville (1989) and Klump/de la Grandville (2000) have shown that a higher elasticity of substitution leads to higher economic growth. My question is, if there is a way to ...
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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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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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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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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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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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Elasticity of subsitution: a redundant calculation?

Elasticity of subsitution is a measure of the curvature of an isoquant1 and can provide us information regarding the nature of the production functions we are dealing with. this is visualized in ...
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476 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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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 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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Cross price elasticity of demand vs Price elasticity of demand

Is the cross price elasticity of demand between two goods always lower in magnitude than the price elasticities of demand of each good?
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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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241 views

Constant elasticity proof for log-linear demand curve

From Perloff 2008e solved 2.2: Q: Show that the elasticity of demand is a constant e if the demand function is log-linear, ln Q=ln A+e ln p. A: Differentiating with respect to p, we find that (dQ/dp)/...
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Unitary Elastic Demand

My teacher defined Unitary elastic demand as demand which has $PED = (-)1$ . The formula I have been told for $PED$ is $\%\Delta Q_d /\% \Delta P$. But how can total revenue $( = P\times Q)$ remain ...
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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 ...