Help with Economics

[Nolan92]

I dont quite get finding out if a good is elastic inelastic or unit elastic.

I get price equilibrium where the supply of goods meets that of the demand.

Can someone give me an example step by step on how to find the elasticity of the prices of goods?? also can you explain Elasticity vs Slope.

Thanks

 

[Joel`]

Price elasticity of demand is used to measure how sensitive demand for a good is to a change in price. You can calculate a numerical answer for it with this formula:

When drawing supply-demand diagrams you can demonstrate elasticity by changing the steepness of the demand curve. An inelastic good will have a steeper curve, as consumers are willing to buy the good for whatever the price. An excellent example for such a good would be premier league tickets. Manchester United for instance can charge much higher prices and still maximise capacity, as people are desperate for the tickets and will pay, another would be petrol. An elastic curve is less steep, and a change in price leads to a more than proportionate decrease in demand. Elasticity is decided numerically.

Elasticity = 0 means perfect inelasticity (A vertical demand curve)
Elasticity less than 1 means inelastic.
Elasticity = 1 is called unitary elasticity and is your standard curve.
Higher than 1 is elastic
Elasticity = infinity is called perfect elasticity and is purely theoretical, it is a perfect horizontal curve.

I'm going out now but can add some more stuff and write about the other forms of elasticity later.

 

[Raikan007]

great post from Joel, I loved Eco's at college/university (there is not one person besides by the sounds of things Joel who feels the same way

that graph will/should help you put what Joel said above into picture

 

[Joel`]

Also note there's multiple types of elasticity. Price elasticity of demand, price elasticity of supply, cross elasticity of demand, income elasticity of demand are the key ones. You can also use the theory of elasticity to determine facts about the slope of demand/supply. Price elasticity of demand will always give you a negative value as demand will always decrease when price increases in some way (You can ignore the minus when working out the type of elasticity though). Since it's negative it makes the gradient of the demand curve negative so it's downwards sloping.

The determinants of the supply curve are that producers want to produce more as price raises, as it of course increases their profit, so the supply curve goes upwards. Price elasticity of supply measures how easily a producer can increase supply in response to a price increase. Inelastic supply means a producer will struggle to increase production in response to a price change. For instance, a factory owner could already be at max. capacity, increasing any more would require a whole new factory which requires a large capital investment, plus the length of time required to build it. Agriculture is very inelastic in terms of supply too, a farmer has fixed land to produce in, and relies on the weather intensively. No matter how much the price increases, the farmer will be at a struggle to increase production given time to grow his goods. Supply is almost always more elastic in the long run than short run. In the long run we assume all factors of production are variable, whereas in the short run only labour is.

Hope I helped! Just ask if you need any other help or didn't understand something.

And Raikan, it was interesting and I enjoyed it, but I prefer Physics to it. I'd have liked Economics a bit more if the A-level course actually used some Maths in it like university level , some of the units could get really boring too.

 

[Nolan92]

Thanks so much my prof was not very clear in explaining.


All that we were given on Elasticity was the Formula a chart showing the price and quantity of a good on graph, then expected us to know all of this.

Thank you so much

Joel'

Raikan007

 

[Joel`]

Thanks so much my prof was not very clear in explaining.


All that we were given on Elasticity was the Formula a chart showing the price and quantity of a good on graph, then expected us to know all of this.

Thank you so much

Joel'

Raikan007

No problem.

Income elasticity just measures the changes in demand with respect to income rather than price. Cross elasticity measures the change of demand for one good (Good A) with respect to a change in price of another (Good B). Then there's a few key words to learn (Inferior good, normal good, substitute good, complimentary good). And that's pretty much everything on basic elasticity done.

 

[Andy]

Spent 45mins doing a post yesterday morning on this then my ******* internet died. 2 above have explained it well.

 

[Joel`]

Spent 45mins doing a post yesterday morning on this then my ******* internet died. 2 above have explained it well.

Oh I hate that. Started copying anything long I write just in case now.

 

[Nolan92]

Yup just finished Price elasticity with a test and gratefully I passed, YAY 2.5 GPA here I come.

Now on to macroeconomics??

So macroeconomics is the inner workings of an Economy??

GDP: gross domestic product got that.

Price Expenditure:??

Invest something:??

Unemployment rate: Well I don't know the formula of that

Just need to know what these are

Thanks if you guys help out.

 

[Zinedine Zaiddin]

I think macroeconomics has something to do with viewing economy as a whole. not inner workings. but maybe Joel has better explanation for this.

 

[Joel`]

Macro looks at the large scale and the effects of actions by the individual. Micro focuses on the firms and individuals. For instance, Macro you can say a firm made X profit, which contributed to GDP and generated Y in tax. Micro would analyse the firm, looking at economies of scale, the markets etc. for how the firm has been successful. With Macro you concentrate on the whole economy, whereas micro focuses on the individual.

I don't remember using 'Price expenditure', maybe it refers to aggregate demand which is C+I+G+Y+(X-M).

GDP links closely to the formula for AD there ^. An increase in GDP shows that the economy has grown, short term economic growth is defined as an increase in real GDP per capita. Real GDP is used because it accounts for inflationary effects.

Investment is defined as an increase in capital stock. It aims to increase production and revenue from the initial investment, e.g. you invest £100,000 in a new factory, but you expect that over the long run it will be able to produce much more than £100,000.
Investment is vital to macro theory, it increase demand in the economy, and most importantly it increases productive capacity. Productive capacity is the limit to what you can produce, by increasing it you enable economic growth. Investment closely links to savings and consumption in an economy. On consumption, if you choose to invest then you are postponing consumption by choosing to spend on capital, there is an opportunity cost. Savings are where people store their money in the bank. Since most people borrow from banks in order to invest, it's vital that the bank has enough money stored from savings in order to loan back out. You can think of the interest rate as the market clearing price for the banks supply (savings) and the demand for cash (Loans out).

Unemployment is a simple concept, it is defined as someone who is able and willing to work but has been unable to find work. It's measured by two forms, the claimant count (How many people claim benefits) and an ILO survey of employment. % unemployment is total unemployed divided by total labour force. Unemployment is important because it means that the productive capacity of an economy is smaller, but also because it means the government is having to spend money on benefits, which again is an opportunity cost.