work point 4.7

1.
2. (500/5000*100)/(3/15*100)=0.5

work point 4.6

Work point 4.6
1. 25% increase in income
25% increase on plane trips
0% increase in gym
and a 25% decrease in clothes
so 25%/25% is 1
2. they are somewhere between a nessecity and superior
3. 0
4. they are unrelated
5. 25%/-25%
-1
6. it is a inferior good.

work book 10-13

EM|10

1. ELASTICITY: The measurement of how changing one economic variable affects others.

PRICE ELASTICITY OF DEMAND: PED is a measure of responsiveness of the quantity of a good or service demanded to changes in its price

2. Calculate the PED if: a) 5/-15=-3

b)10/25=2.5

3. a) inelastic, because they are addictive therefore if the does increase, revenue will also go up

b) elastic, because of substitute goods

c) inelastic, because people will still buy them for the occasion

d) elastic, because of substitute goods

4. It is intended to do both, but it really only creates revenue for the government. This is because the product is inelastic and there for demand for cigarettes will hardly decrease because of how addictive they are.

EM|11

1. INCOME ELASTICITY OF DEMAND: measures the responsiveness of the demand for a good to a change in the income of the people demanding the good.

NORMAL GOODS: normal goods are any goods for which demand increases when income increases and falls when income decreases but price remains constant.

NECESSITY GOODS: Necessity goods are goods that we can't live without and won't likely cut back on even when times are tough, for example food, power, water and gas.

LUXURY GOODS : Luxury goods are products and services that are not considered essential and associated with affluence.

INFERIOR GOODS: An inferior good is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed.

CROSS PRICE ELASTICITY OF DEMAND: The cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good.

2. a. 10/20= 0.5 for fish

25/20= 1.25 for pork

b. fish is the inferior good and pork is the normal good

c. farm more pigs

3. a.50/50=1

50/20=2.5

b. gasoline is a sub for ethonol and gas and trucks are compliments

c. NEW TRUCKS- can now be used with ethanol..

4 . because tourism is stable.

5. yachts- luxury

clothes- normal

used clothes- inferior

EM|13

1. PRICE ELASTICITY OF SUPPLY- Price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.

PRODUCER SUBSTITUTES- a substitute for production.

2. points chosen at 4 dollars and 8 dollars

25/50=0.5

inelastic.

3. a. autos because they are more widely available

b. mp3s because they are very dependednt on a lower price

c. new homes in a building boom because there are so many new homes

4. because there would be more suppliers

Elasticity

Elasticities-

Eladticity	Is a measure of responsiveness. It measures how much something changes when there is a change in one of the factors that determines it.
Elasticity of demand	Elasticity of demand is a measure of how much the demand for a product chages when there is a change in one of the factors that determine demand. PED XED YED
PED	Price elasticity of demand is a measure of how much the quantity demanded of a product changes when there is a change in the price of the product. PED= Percentage change in quantity demanded of the product/percentage change in the price of a product
The range of values of price elasticity of demand	The range can be from zero to infinity but that’s just theoretical If ped is zero then the change has no effect on the quantity demanded
Inelastic demand	The value ped is less than one and greater then zero This means as the price is raised . the quantity demanded will not fall by much and so the revenue gained by the firm will increase.
Elastic demand	The ped is greater then one and less than infinity This means that when the price is raised the total revenue is not raised enough to make more then before
Unit elastic demand	If the price is raised the demand is proportionate
Determinates of price elasticity of demand	The number and closeness of substitutes- People have more things to chose from and will switch brand The necessity of the product – Inelastic because when we don’t get them we die… The time period considered- It takes consumers time to change their buying habits
Price elasticity of demand and taxation	Governments need to take care of taxing products. The price will rise. Quantity demanded will fall and unemployment will happen,
Cross elasticity of demand XED	XED is the measure of how much the demand of a product changes when there is a change in the price of another product. XED= percentage chane in quantity demand for product x/ percentage change in quantiy demand for product Y
RANGE OF vALuES	Positive and negative matters If the number is positive then the two things Are substitutes. If the number is negative then the two goods are compliments Negative- complements Zero- unrelated Positive- substitutes
Income elasticity of demand YED	Income elasticity- how much the demand for a product changes when there is a change in the consumers income. YED= percentage chane in quantity demanded of the product/percentage changein income of the consumer Positive number- normal good, income elastic Nessecery good have low income elassiticy Superior goods have high income elastity Infererior goods- yed is negative- demand decreases as income increases.
Elasricty of supply	Suppæy change as the price changes- PES=percentage change in quantity supplied of the product/Percentage change in price of the From zero to infinity, but extremes do actually happen Less than one its inelastic- Elastic supply- more then one Unit elastic supply- one
Determinates of price elasticity	How much costs rise as output is increased.- The extistance of unused capcity The mobility of factors of production The time period considered The ability to store stock.
Primary commodities	Cotton or coffee- inelastic because they are nessesary to the production of other goods- no substitutes Manufactured goods are more elastic

Work point 4.5

1. -0.4/0.5= 8%

-60/400= 15%

-15%/.8%

1.8--->XED

2. due to the act that the Xed is 1.9 it means tjat tjese two produccts are substitutes

3. -0.4/5=-8%

30/600=5%

5/-8%= -0.6

4. due to the fact that the XED is -0.6 the two goods are compliments.

work point 4.4

1. 10%increase in price

¤p=+10%

Adult demand change=-4%

youth demanded=-13%

Youth -> 13/10= 1.3 ped elastic

Adult-> -4/10=0.4-> PED

2, Adults have a large income and inalstic have a more steady habits youth are more likely to have less money which they are likely to spend on other goods.

3. Govenrments would tax cigarettes because they are demerit goods and not good for the population. the government can also make alot of revenue from the taxes

work point 4.2

1. Change in price= 5/0.5=10%

Change in demand= 72/12*100=20%

2. 2*1=2---- price elasity---- price is elastic

3. 5*60=300

4.5*72=24

4.

5. Yes beacuse there is a positive revenue change of 24 dollar

Work point 4.1

1. % change in peice= (-0.4/4)100=-10%

% change n Qd = 30/600(100)= 5%

2. Priced elasiticity= %change in P/%change in Qd= %/-10=0.5, ped elastic

3. Revenue initially=4*600= 2400

revenue after price change= 3.6* 630=2268

%change in revenue= -132/2400*100=-5.5%

4-

5. No, because their overal revenue dropped 5.5%

Elasticities

elastic- inelastic

work point 4.1

1. 0.5 and

Buffer stock schemes notes

Buffer stock schemes are applicable in

Comomodity (raw material) markets becayse their prices are ofton unstable.

1. Agricultuaral commodities- wheat, rice, coffee, cocoa-

-Volotile prices due to supply shifts caused by natural phenomena like weather.

2. industrial/mineral commodities- copper, rubber or tin.

-volatile prices due to changes in demand caused by rising and falling national incomes.

agricultural commodities

at the mercy of natural dangers like weather, insects or or disease.

- when conditions are excellent , agricultural commodities ofton have a bumper crop and abundant crop

industrial

changes in the world economy are likely to have a large impact on producers.

Both demand and supply side factors create instability in commodity markets.

difficult for producers to plan with uncertainity

instability can result in lower standards of living with negative consequences for prodcucers and the community.

these conditions may cause governemtns to intevene to protect prices from extreme fluctuations.

http://economicsonline.co.uk/Market%20failures%20graphs/Price+ceilings.png

Prices are allowed to fluctuate normaly when within the price band.

government intervention occurs when the free market pushes prices above the top price or below the bottom price.

bumper crop situation

in this case the buffer stock manager would need o buy uo excess supply and store it- has an oppurtunity cost

poor weather or pest problem

in this case the stock manager would release stock to bring price down.

Problems- only suitable for non perishable goods.

-storage

-improvements in technology that must be bought by governments.

-choosing the right price band is problematic.

- producers wll pressure the governemnt to make the price band high

commodity agreements

when different countries work togehrt to opperate buffer stock scheme

UNTAD in th 1960s

fail.

Price bands

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http://imageshack.us/photo/my-images/708/econ2.jpg/ -page 2

Chapter 4

The interaction of, and applications of demand and supply

Price controls

Price controls	Free market may not have the best outcome Government intervenes -max price -min price -price support Comodity agreements
Max price control	Government sets a max price below the equilibrium price Product is a nessecity Druing times of food shortage To ensure poor have food Problems- black market Queues at storees Government might have to reduce the shortage Shift demand curve to the leftm goes against imposing max cost as it limits consumption Move supply curve to the right 1-offer subsidys 2- produce good themselves 3- realease stored goods The governemnt inccurs a cost and forced to take money out of other areas.
Max price control	Sets a a min price above the equilibrium prices Floor prices 1. to raise income for the producers of goods such as agriculture 2. to proteect workers with min wage Excess suply creates problems Surplusses governemt intervenes Store the surplus, destroy it or sell it abroad Oppurtinity cost for this though 2 waysfor min cost to be matainined Quotas and advertizement Problems may occur Innificiency and waste of resoruces
Price support and buffer stock schemes	Governments stabilise prices- raw materials Bumper crop- abundent supply Poor weather will drive priices up Big swings in demand on other raw materials too Swings in the commodity market Unstabel will cause negative consequences governmetns will intervene Buffer stock manager sts a price band Problems- non parishable goods High costs of storage Financial preasure People want high proffit
Commodity agreements	Different countrys ina buffer stock scheme commodity price agreement Support commodity producers in noob countrys Rubber