Danny Zambrano Assignment 6

November 26, 2011

1 In your own words, explain the difference between elastic and inelastic. Then, identify two elastic and two inelastic goods that you buy and explain why they are elastic or inelastic. Elastic is in which the supply or demand for a good is simply likely to change in response to a change in the price of a good or service. Inelastic means the supply or demand for a good are unlikely to change or be unaffected when the price of that good or service changes. Elastic: 1. Coffee 2. Jewelry These are elastic consumer goods because if prices tend to increase or decrease consumers response will change as well. Especially in this economy people don't want to pay for a $6 cup of coffee. In elastic: 1. Electricity 2. Milk These are inelastic consumer goods because even if the price goes higher relatively the demand stays the same. 2 In your own words explain the difference between perfectly elastic and perfectly inelastic. Then, identify one example of each from your own personal or professional life and explain why they are perfectly elastic or perfectly inelastic. The difference between perfectly elastic and perfectly inelastic is that P. Elastic is when an infinite small change has occurred in price it has a result in where there is an infinitely large change in quantity demanded or supplied and P. Inelastic is when the quantity demanded or supplied is unaffected by any change in the price. All it means is that no matter how much the price changes the demand never changes. One example of P. Elastic: To me in my professional or personal life are no perfectly elastic goods. But have been told luxury goods are a perfect example of P.Elastic. One example of I. Elastic: Gas. I pay for gas every single week no matter how high the price goes up because my car is my only means of transportation to anywhere I go school, work, etc.

3 List the determinants of elasticity. B. Then, explain what each determinant means. C. Then, identify two examples from your own personal or professional life that illustrates EACH one of the determinants of elasticity. 1. Necessities versus Luxuries - It is harder to find substitutes for necessities so quantity
A.
demanded will change less. Ex: Car and Laptop. These two things are Necessities in my case because I need a car to travel to and back from work. In this day in age everything is very technological in work wise and school wise and its a necessity to have even though you can use the computers at a school but its a necessity for some people.

2.

Availability of Close Substitutes - If there are close substitutes, buyers will move away from more expensive items and demand will be elastic. Ex: Playstation 3 and Yankee Tickets

3.

Definition of the Market - The more broadly we define an item, the more possible substitutes and the more elastic the demand. Ex: Car and Airplane Ticket

4.

Time Horizon - The longer the time available, the easier to find substitutes and the more elastic the demand.

5.

Relative Size of Purchase - Purchases which are a very small portion of total expenditure tend to be more inelastic, because consumers are not worried about the extra expenditure.

4 What is a percentage change? How would you explain it in your own words? A percentage change is useful to help people understand changes in a value over time. In my understanding its a solution to a problem for example Percentage change in quantity demanded divided by the percentage change in price. 5. A. Simply write down the point price elasticity of demand formula Simply calculates the elasticity for an infinitesimal change in price and quantity at any given point on the demand curve:

B Simply write down the midpoint price elasticity of demand formula

(B2 - B1) (A2 - A1) midpoint = elasticity (B2 + B1)/2 (A2 + A1)/2

C. What do you see as the major difference between the two formulas? How can two formulas measure the same thing and give you two different answers? The major difference and why they both give you different responses between both formulas is that PED simply calculates the elasticity for an infinitesimal change in price and quantity at any given point on the demand curve. However; the midpoint formula calculates the percentage changes based on the average of the initial and ending values of each variable, rather than the initial values given at the beginning of the problem. 6. How would a rule that states all CUNY students must use a certain Dell laptop effect your Ed for laptops. Explain your answer. It will affect it somehow but not officially because no matter what the laptop is you will be able to still use the main functions of a laptop. Like writing a paper, using it for email, and to research for a class that a paper is required. But in most cases it can affect people who are in different Majors such as Design or Computer Science. 7. Raising MTA subway fares always leads to more revenue for the MTA. How can this be so given the law of demand? It would be great to give MTA subway fares a law of demand because at this moment MTA are really killing it for everyone because in the city Buses and trains are the only mean of transportation. And the more they demand for this product the more the price goes higher when it should go down. But this is an inelastic demand because even though they raise the price of the MTA fares more the demand will still stay the same. People will always need to use the MTA and no matter the price they will still pay for it.