New answers tagged supply-and-demand
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You need to be clear on which one is the effect and which one is the cause in the elasticity formula. Also this formula relates two percent changes of x and y and not proportions (which is a different concept).
In this case, it seems that the income changes (and price remains constant), so we want to see the effect on the demand (quantity). Therefore Var%...
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Suppose we're both price-takers in the market, so prices are fixed with respect to our actions. This implies that there is enough of each good for us to trade until we are indifferent to further trading (which, as utility-maximizers, we will do by definition). Each of us will sell one good and buy another until our private MRS is equal to the slope of our ...
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Even in a crash, some stocks do better than others. In general, not every investor has the same exposure to the market, and so some investors do better than others. A handful can likely afford to take risks, knowing that the market will rebound at some point. Fire sales happen en masse, and some people make out like kings. Remember that as long as your ...
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the news of a downfall of stock prices hit investors, so they obviously
wanted to get rid of their shares.
This is not the way you want to think about prices. Stock prices are determined via the equilibrium of demand and supply. It sounds like you are assuming that they drop from the sky and investors react, but they are determined via the actions of ...
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A supply curve is typically derived from a cost function, and you're leaving out some important costs such as storage and depreciation, which would help relieve some of the seeming counter-intuitiveness around a supplier choosing to "sell more at a loss" compared to selling less.
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What you're doing when you calculate $dQ/dP$ is assuming that all forms change their process by $dP$. This is the same as saying that the market price changes by $dP$ and is why you get the same number.
The main difference here is that when the book says price elasticity of demand is higher for an individual firm, it means that, holding the prices of other ...
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