Summary
Economics chapter 6 summary
- Course
- Institution
Principles of economics, year 1 IBMS block 1. Chapter 6 with graphs
[Show more]
1 review
By: xmiloujanssen • 5 year ago
Seller
Follow
IBMSSTUDENT
Reviews received
Content preview
Chapter 6Law of demand: how higher price how less buying, how cheaper price how more
buying.
Relatively elastic or elastic:
High responsive on price change. Like with a restaurant if the price are going up
consumer will go elsewhere or just eat at home.
Relatively inelastic or inelastic:
Small responsive on price change. Like toothpaste consumer don’t really pay
attention to the price of this product. This causes only small changes in the
amount purchased.
% change in dependent variable : % change in independent variable
Substitutability:
Large number of substitute goods that are available the greater the Price
Elasticity demand.
Proportion of income:
Higher price of good relative to consumers income the greater the PED.
Luxuries VS necessities:
The more that a good is considered as a luxury rather than a normal the greater
the PED.
Time:
Product demand is more elastic the longer the time period. Consumers often
need time to adjust to changes in prices.
Types of elasticity:
Income Elasticity of Demand:
Cross Elasticity of Demand;
Price Elasticity of Supply.
Inelastic
Inelastic ratio
inelastic demand: E less 1
perfectly inelastic demand: E = 0
inelastic: not sensitive to changes in price
Inelastic demand:
consumers are NOT sensitive or insensitive to a change in price ; small changes
in QD
Inelastic sensitivity:
Just a little change in consumer because of price change.
Often basic products: bread, medicine, water, house. Consumer will (have to) buy
this anyway regardless the price.
Perfectly inelastic: quantity demand does not change, no matter the difference in
the price.
, In the graph the demand curve will stand right up like in the middle of the graph
ED= 0:
TR Graph in inelastic:
Price increased comparing to the Quantity
Elastic demand
Calculate Elasticity Demand
Price elasticity of demand:
If price of product change, by which amount does the QD of that product
changes?
There is 1% decrease or increase in the price how much % is the change in QD?
Calculate the Change in QD:
% Change in QD = Qnew – Qold : 2Qaverage.( =1)answer
2
Qaverage = Qold – Qnew : 2
Calculate the % change in price:
% change Price = Pnew + Pold : 1Paverage (= 2 )answer
1
Paverage = Pold – Pnew : 2
Then you have to dived the answer.
ED= % change in QD : % change in price x 100
(1 : 2)
Elasticity the outcome is always a ratio (single number) and always drop the
minus sign.
Change =
% Q=
Qnew – Qold
11 – 9 = 2
Qold + Qnew
9 + 11 = 20
20 :2 =10
2 : 10 x 100=20 = % change QD.
% change P=
Pnew – Pold
2,90 – 3,10 = 0,20
Pold – Pnew
3,10 + 2,90 = 6
6:2=3
0,20 : 3 x 100 = 6,67 = % change in P.
20 : 6,67 = 3
Elastic sensitivity:
Often luxury product: fresh meat, holidays, cars, furniture.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller IBMSSTUDENT. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.47. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
81531 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now