behaviour of macroeconomics

Attribution Non-Commercial (BY-NC)

5 views

behaviour of macroeconomics

Attribution Non-Commercial (BY-NC)

- Chapter 5 - Answer
- Worksheet - Economics - Supply and Demand
- Ec303 Hw 3 Solutions
- MB0026 SET 1
- Rarely Discussed Economic Facts for You to Consider 9/4/2012
- s -07 - A - Supply and Demand -2
- Topic 2
- Supply and Demand_Group 1
- Supply & Demand Curves
- IB Micro Study Guide
- 9707_y03_sw_2
- Supply and Elasticity of Demand
- Demand and Supply
- Lovewell7e_PPT_Ch03
- ECO2Appt2
- Econ Micro Ia Word
- Intro to Econ 1 Wk Sh. Doc
- Econlrt Chapter 3
- Summary 3
- Pricing

You are on page 1of 36

D D P2 P1 P0 S 0 D 0 1 2 D D S

2/20/2014

Fuel price Hike may cut demand. Hike in price of petrol and diesel may cause a definite slowdown in demand for these items

With the prices of petrol and diesel soaring to a new high demand for used fuel efficient cars have gone up and bigger and less efficient cars like Honda Civic, Hyundai Elantra and Ford Fiesta will bring down their prices.

At present food accounts for nearly a third of Asian personal expenditure so despite rise infood prices consumption will continue to grow at the rate of 3.7% matching the supply growth of 3.7%

2/20/2014 2

Jet,Spice to cut flight routes aimed at pruning losses following hike in ATF Rates by oil companies.Record fuel costs will plunge the airline industry back into loss this year and cause a rise in prices

However the rise in costs of fuel cannot be entirely borne by the price sensitiv Customer and has to be absorbed into their own costs Glaxo Smithklines Consumer Healthcares latest offering Womens Horlicks was the best--ever launch because of its unique product design And advertising

2/20/2014

CONCEPT OF ELASTICITY

Responsiveness of QUANTITY DEMANDED to

a) Price b) Income c) Advertisement outlay d)Cross elasticity

Price elasticity

Ep = Percentage change in quantity demanded

Percentage change in price

Income elasticity

Percentage change in Quantity demanded Percentage change in Income

Advertisement Elasticity :

Percentage change in Quantity demanded Percentage change in Advertisement expenditure

2/20/2014 4

CROSS ELASTICITY

PERCENTAGE CHANGE IN QUANTITY DEMANDED OF X PERCENTAGE CHANGE IN PRICE OF Y WHERE X&Y ARE RELATED GOODS

2/20/2014

RESPONSIVESS OF THE QUANTITY DEMANDED TO CHANGE IN PRICE

ep = PERCENTAGE in Qty demanded PERCENTAGE in PRICE USING CALCULAS WE GET Q P Q P P Q

2/20/2014

= = = =

6

WITHOUT USING CALCULAS

LET

ep

Q1 & P1 Q 2 & P2

= Q 2 - Q1 P2 - P1 P1 Q1

EG ASSUME P1 Q1 ep =

= 5 , P2 = 20 , Q 2

= 10 = 10 = -0.5

10 - 20 10 - 5

5 20

So As PRICE

2/20/2014

Q X Y Y Q = Q2 - Q1 X Y2 - Y1 Y1 Q1

THE FOLLOWING TABLE SHOWS THE QUANTITY DEMANDED OF MEAT AT VARIOUS INCOME LEVELS . FIND ey BETWEEN SUCCESSIVE LEVELS OF INCOME

2/20/2014

APPLY Q Q1 = Q2 - Q1 . 2 - 1 10 2000 1 Q11 4000 10 = 2

FIND THE CROSS ELASTICITY OF DEMAND BETWEEN (a) COKE (X) AND PEPSI (Y) (b) COKE (X) AND SUGAR (Z)

exy = Qx . Py Py Qx exZ = Qx . Pz Pz Qx

2/20/2014 9

BEFORE COMM PEPSI (Y) COKE (X) SUGAR (Z) COKE(X) P 13 8 10 8 . Py Qx Pz Qx Q 30 15 10 15 = (10 -15) X 13 11-13 15 =

AFTER P 11 8 11 8 Q 40 10 9 12

xy

= Qx Py

=

= 2.17

exz

Qx . Pz

10 15

= -2

x& = x &z =

SUBSTITUTES COMPLEMENTS

2/20/2014

10

PROMOTIONAL

FORMULA

ELASTICITY

Q

A

A

Q

2/20/2014

11

THE DEMAND FOR MEAT IS GIVEN AS FOLLOWS Qm = 5850 6 Pm + 2Pc + 0.15

= Pm = Pc = INCOME OF RAVI = RS. 8000 PRICE OF MEAT = RS. 125/Kg PRICE OF CHICKEN = RS. 70/Kg

SOLUTION

= Qm x

Qm

2/20/2014

12

Differentiating the demand function w.r.t. we have

Qm

0.15

FROM THE DEMAND FUNCTION WE HAVE Qm = 5850 (6 x125) + (2 x 70) + 0.15 x 8000 = 5850 750 + 140 + 1200 = 6440

2/20/2014

13

Qm

ey

= 0.15 x 8000 =

6440

0.186

= 0.186

CROSS

PRICE Pc

ELASTICITY

ec =

Qm

ec

2 x

2/20/2014

14

PRICE ELASTICITY

ep =

Qm Pm X Pm Qm

2/20/2014

15

Salt Water Coffee Cigarettes Footwear Housing Foreign travel Restaurant meals Air Travel Motion pictures Brand of coffee 0.1 0.2 0.3 0.3 0.7 1.0 1.8 2.3 2.4 3.7 5.6

2/20/2014

16

If the price elasticity of demand for cable TV connections is high for example greater than 1.5 and the price elasticity of demand for movies shown in theatres is less than 1 what does this imply?

2/20/2014

17

ARC ELASTICITY

LET US NOW MEASURE ELASTICITY ON A SEGMENT R S. THE PRICES AT POINT R& S ARE P0 & P1 RESPECTIVELY AND QTY DEMANDED ARE 1 AND Q0 AND Q1 RESPECTIVELY. MOVEMENT TAKES PLACE FROM R TO S AND FROM S TO R . HENCE AVERAGES OF PRICES & QUANTITY ARE TAKEN. 0 P0 P1 R S P1 0 Q0 Q1

2/20/2014

18

ARC ELASTICITY

e

p

= = =

Q1 Q0 P1 P0 Q1 Q0 P1 P0

X X X

Q P

is -ve

2/20/2014

19

1)

COMPUTE ARC ELASTICITY BETWEEN C & D MONTHLY DEMAND SCHEDULE FOR RICE PRICE Qd A 10 30 B 11 25 C 12 21 D 13 18 RICE DEMANDED P1 = 12 q 1 = 21 P2 = 13 q 2 = 18 P =1 Q = -3 epD = -3 X (12 +13) = -3 X 25 1 (21+18) 39 = -1.92 epD = -1.92

SINCE

(Q X P1 +P2) (P Q1 + Q2)

2/20/2014

20

P A O

LOWER SEGMENT

UPPER SEGMENT R O

Let us consider a demand curve AB and measure its elascity at point R. AB TANGENT TO THE DEMAND CURVE P = Slope of AB = OA

Q

2/20/2014

OB

21

- 0B 0A Q P = - 0B x RN --(1) P Q 0A RM triangles AOB, AMR & NRB are all similar 0B = NB 0A RN ( SUBSTITUTING IN EQ (1) = - NB * RN RN RM = -NB RM = -RB ( NB/RM = RB/AR) AR Q P = =

ep

All ep

ep

2/20/2014

22

Unitary Elastic % Q=%P Relatively Elastic % Q > % P Perfectly Elastic % P = 0 Relatively Inelastic % Q<% P Perfectly Inelastic % Q = 0

P

p

e e e e e

= > = < =

1 1 1 0

0

2/20/2014

e >1 e =1

p p

R ep<1

e

B

=0

23

DEMAND SCHEDULE FOR X PRODUCT IS GIVEN PRICE QTY DEMANDED 3 20 4 15 5 11 6 9 7 7 COMPUTE (A) POINT PRICE ELASTICITY FOR AN (1) INCREASE IN PRICE FROM RS. 5 TO RS. 6 (2) DECREASE IN PRICE FROM RS. 6 TO RS.5 (1) ePD = Q P Q P X Q P = (9-11) = -2 = (6-5) = 1

PD

-2 1 = -0.909

5 11

2/20/2014

24

AVERAGE REVENUE (AR) =TOTAL REVENUE PER UNIT AR= R/Q =PQ/Q MARGINAL REVENUE ( MR) = ADDITIONAL REVENUE WHICH A SELLER OBTAINS BY SELLING AN ADDITIONAL UNIT MR= R Q R = P.Q ..eq1 Differentiating both sides of the equation we get MR= R Q P+ Q

2/20/2014

=P Q Q X P Q

+Q P ...eq2 Q

25

Substituting the value of ep in MR Eq WE GET.Note that elasticity Of demand has a negative sign so when modulus is removed then Minus sign appears in the formula as shown below

2/20/2014 26

E=1,MR=0,

Ep>1,MR>0, Ep<1,MR<0

TR is max and it remains same when p rises TR falls as price rises TR Rises when p rises

MR=P(1-1/E)

2/20/2014

27

Do

s1

APPLICATIONS

so

s1 so

Es=ed s1 so q1 q2 Do

Ed=inf

po s1 so q1 do P1 po s1 s1 q2 do

so

Ed=0 q1 q2

so

s0 d0 Es=infinity Es=0 d p1 po

si

s0

d0

q1 q2 q

ILLUSTRATIONS

1) GIVEN BELOW IS THE WEEKLY DEMAND AND SUPPLY FOR MILK PRICE 9 10 11 12 13 14 DEMAND 18 16 14 12 10 8 SUPPLY 18 20 22 24 26 28

(A) DERIVE THE DEMAND AND SUPPLY FUNCTION (B) AT WHAT PRICES WILL NO MILK BE DEMANDED AND SUPPLIED IN DELHI (C) FIND THE EQUILIBRIUM PRICE & QUANTITY (D) INDICATE AN INCREASE IN BOTH DEMAND AND SUPPLY (BY 6lts each) GRAPHICALLY SOLUTION FORM OF A LINEAR DEMAND FUNCTION O = + bP = Qty demanded when price = 0

2/20/2014 30

ILLUSTRATIONS

Q= bP b = Q = -2 = -2 P 1 Q = - 2P (1) PUTTING THE VALUE OF b IN eq (1) WE GET 10 = -2 (13) = 36

2/20/2014

31

(2)

SUPPLY FUNCTION : FOR EVERY ONE RS. IN PRICE LEVEL SUPPLY OF MILK ses BY 2 LAKH Qs = 2 P (3) (B) WHEN NO MILK IS DEMANDED DEMAND FUNCTION IS AS FOLLOWS Q=0 Q= 36-2P 2P = 36 P = 36/2 =18 WHEN NO MILK IS SUPPLIED

2/20/2014

32

Qx =12000 5000 Px + 5I + 500 Pc Px =Price of product I = Income per capita Pc = Price of competing good 1) Determine what effect a price increase will have on total revenues 2) If per capita income rises by 5% next year what is the effect on sales of Good X 3) Assess the probable impact of competing firm changing its prices

2/20/2014 33

INCOME/ MONTH QTY/ MONTH 400 10 600 20 800 30 1000 35 1200 38 1400 39 1600 50 1800 25

2/20/2014

34

GIVEN THE FOLLOWING DATA Px 2.50 2.75 2.75 3.00 Py 3.00 3.25 3.50 3.50 Qx 600 650 700 650

*Can we compute price elasticity of demand between a price of 2.50 and 2.75? Why orWhy not? *What is the cross elasticity of demand of X w.r.t Y between price of 3.25 and 3.50 *What is its own price elasticity of demand for X between a price of 2.75 and 3.00? *Is X a normal good *Are X& Y substitutes or complements

2/20/2014 35

D D D E0 S S1 D S0 S1

P0 S

E1 S0 D S1

D S1

D 0

D

Q0

Q1

ALL SPEED BREAKERS ON MOTORWAYS ARE ABOLISHED : DD CURVE FOR PETROL MINIMUM AGE FOR DRIVERS INCREASED TO 21 YRS DD CURVE FOR MOPEDS.

INSURANCE PREMIUM FOR FIRE ACCIDENTS INCREASED : DO CURVE FOR FIRE ACCIDENTS POLICIES.

2/20/2014

36

- Chapter 5 - AnswerUploaded bywynellamae
- Worksheet - Economics - Supply and DemandUploaded byUsama Maan
- Ec303 Hw 3 SolutionsUploaded bytracer14
- MB0026 SET 1Uploaded bymuravbook
- Rarely Discussed Economic Facts for You to Consider 9/4/2012Uploaded byKT
- s -07 - A - Supply and Demand -2Uploaded byJan Crezul Balodong
- Topic 2Uploaded byRuquia Arjumand
- Supply and Demand_Group 1Uploaded byHa Tomboy
- Supply & Demand CurvesUploaded byjguinto7
- IB Micro Study GuideUploaded bySaketh Vuppalapati
- 9707_y03_sw_2Uploaded bypunte77
- Supply and Elasticity of DemandUploaded bysuru2331
- Demand and SupplyUploaded bykarteek_ar
- Lovewell7e_PPT_Ch03Uploaded byRowan Rodrigues
- ECO2Appt2Uploaded byRegine Rafer
- Econ Micro Ia WordUploaded bysenoj21
- Intro to Econ 1 Wk Sh. DocUploaded byirishlass94
- Econlrt Chapter 3Uploaded byJaypaul Ocampo Acidera
- Summary 3Uploaded bymaustro
- PricingUploaded byShubhank Sharma
- December 2010 P4QUploaded byAhmed Raza Mir
- Price and Effect on Demand and Supply EconomicsUploaded byArta Koxha
- dmand-100202064143-phpapp01Uploaded byMehroos Ali
- intermediate part 1.pdfUploaded byNomanAli
- AQA-Economics-AS-Level-Technocrat-Notes-The-operations-of-markets-and-market-failure.pdfUploaded byHumza Imam
- ICSE examUploaded byImdadul Halder
- 8. the MarketUploaded byHilda Asante
- LESSON_1-MT-ME.pptxUploaded byAllyza Macatangay
- Economics for Sr SecondaryUploaded byrajat
- Ques.Uploaded bybhanu sharma

- UraniaUploaded byelmacuarro5
- K14-Using HFM Process Management to Drive HFM ExtractsUploaded bydropbear2007
- Lama Norlha TeachingUploaded byEricson Chew
- It Law 2 - Dr p d SebastianUploaded byarul279324
- Review Lincoln, A.T., The Gospel According to Saint JohnUploaded bygersand6852
- Test Case TemplateUploaded byArunesh Kumar Singh
- Brief Profile of Dr. Punit Kumar Dwivedi CEO at Atal Incubation Centre- Prestige Inspire Foundation , Indore (AIC-PIF)Uploaded byDr. Punit Kumar Dwivedi
- Government ProcurementUploaded byAvishek Pathak
- EXPRESSING FUTURE TIMEUploaded byapi-25902679
- Cojuangco v. SandiganbayanUploaded bynino_herreraiii
- Icebreakers, Energizers and TeambuildersUploaded by24nik
- 1622 Civil Procedure 07Uploaded bySyoi Diazx
- Aralin Sa Panghalip Na PamatligUploaded byAce Andrada Estampador
- [CRIS - Bulletin of the Centre for Research and Interdisciplinary Study] Managing Marketing Report on L’Oréal GroupUploaded byAbdou Darboe
- Malifaux Plastic Model List - By Faction and TypeUploaded byMarco Cossotti
- Acutely Ill Adults in HospitalUploaded byKonstantinos Papadakis
- 8.4 Ciclosporin Eye Preperations Fact Sheet 10.03.16 UntrackedUploaded bybarkah_rm
- 2011-2012 Baldrige CriteriaUploaded byVenugopal Honavanapalli
- Music Tech Focus - Ableton Live - 2016-2017.pdfUploaded byPDFingHell
- Fotografía DPIUploaded bySergio Godoy
- Earth 2010 AUploaded bylcdking
- Post Modern ArtUploaded bysubir
- 42_pcc_advacc_may08Uploaded bymadaaam
- Case StudyUploaded bychunlun87
- PD 533 Anti-Cattle Rustling Law of 1974.docUploaded byAdrianne Benigno
- NR-BW465Uploaded byPawel Vlad Lato
- MLE HistoryUploaded bykakarama
- Tyndall vulnerabilityUploaded bySamuel Edwin Pizarro
- Answer KeyUploaded bydilip kumar
- 16 Standardized Tests Being Used in Education TodayUploaded byIrfan Ashraf

## Much more than documents.

Discover everything Scribd has to offer, including books and audiobooks from major publishers.

Cancel anytime.