Exam 27: Simple Analytics of Supply and Demand

Whats defention of terms: -demand

Understand and describe what happens when a market is not in equilibrium. -What is the difference between elasticity and slope?

Calculate and explain the use of income elasticity. -What is income elasticity? What is it used to measure?

Since there is no substitute for insulin, we would expect the price elasticity of demand for insulin to be

Whats defention of terms: -change in demand

Understand and describe what happens when a market is not in equilibrium. -As manager of the Eagle Crest Ski Resort and Lodge, you announce an increase in the price of lift tickets from $35 to $50. The number of skiers falls, but your total revenue increases. a. What does this say about the elasticity of demand for lift tickets? Should you raise ticket prices even more? b. Your friend, an avid skier and economics major-but in no way affiliated with the ski lodge-says she is actually happy that you raised the ticket prices. How could she think such a thing?

Calculate and explain the use of income elasticity. -Look at each of the following pairs and discuss which component has a higher price and income elasticity. Briefly explain your answer. a. movies/taxi cabs b. tobacco/gasoline c. electricity/water d. mobile phone service/clothing e. intercity busses/doctor's services Both are necessity goods. Doctor's services are likely to be more inelastic in most cases.

Understand and describe what happens when a market is not in equilibrium. -Suppose that the market for PC laptop computers is in equilibrium. Determine how the following shocks will affect the equilibrium price and quantity. Draw a fully labeled demand and supply curve diagram to illustrate each of your answers. a. Computers become easier to use. b. The price of memory chips falls. c. Software prices fall. d. All college students are required to own personal computers. e. The price of electricity rises substantially. f. Doctors warn of health risks from radiation from video terminals.

Define and explain the basics of supply and demand analysis. -Explain what is meant by referring to the market as a "process."

Understand and describe what happens when a market is not in equilibrium. -Suppose that the market for wooden Number 2 lead pencils is in equilibrium. Determine how the following shocks will affect the equilibrium price and quantity. Draw a graph to illustrate each of your answers. a. Professors begin to require ink on all exams. b. The price of lead increases. c. School attendance falls. d. Legislation restricts lumber harvests. e. Pencil makers receive a large wage increase. f. The price of ballpoint pens falls.

Whats defention of terms: -supply curve

The owner of a movie theater found that when he raised ticket prices 10%, he sold 20% more tickets. What kind of elasticity does this response indicate?

Assume Harvard wants to raise more revenue from tuition. What should Harvard do if the price elasticity of demand for a Harvard education is inelastic?

Whats defention of terms: -luxury goods

The price of gasoline rose 20% last month, the quantity demanded of gasoline fell by 5%. What is the price elasticity of demand?

Whats defention of terms: -supply schedule

What would cause an increase in equilibrium quantity accompanied by a decrease in equilibrium price?

Calculate and explain the use of income elasticity. -Use income elasticity to explain the differences between normal, inferior, luxury, and necessity goods.

Understand the context in which the supply and demand model is developed. -Does the demand curve in the supply and demand model capture all the people who want or desire a good? Why or why not?

Understand and describe what happens when a market is not in equilibrium. -Suppose that a supply curve is given as: 20 22 24 26 28 30 32 34 \ 70 60 50 40 30 20 10 0 a. Graph this data. b. Calculate an elasticity of supply coefficient. Show the relationship between price elasticity of demand and total revenue and how this relationship is important to firms and policymakers.