HBX Core Economics for Managers
Questions And Answers Verified By Experts
A cautionary note: notice that price is not a factor that shifts the demand curve
diminishing marginal returns usually people are willing to pay less for the second ticket,
even less for the third, etc etc. that is diminishing marginal return, its like 8,6,4,2,...etc.
steep vs flat steep: quantity demanded is not sensitive to price
flat: customers are much more sensitive to price changes
But what factors determine whether the demand curve for a product is steep or flat? close
substitutes
necessity vs luxury
time horizon
inelastic vs elastic Colloquially, we sometimes refer to steep demand curves as "inelastic"
curves, and to flat demand curves as "elastic" ones. (In the next lesson, we'll get more precise
about this terminology and the concept of price elasticity.)
individual vs. aggregate demand curve both are downward sloping because diminishing
marginal returns
, HBX Core Economics for Managers
Questions And Answers Verified By Experts
demand curve tell you about price sensitivity? So far we have learned that a steep curve is
associated with low price-sensitivity, and that a flat curve is associated with high price-
sensitivity. However there is a problem with using slope as a measure of price sensitivity because
the slope is dependent on the units of measurement. In addition, we can't see how significant the
change in price is.
The Definition of Elasticity The elasticity of a demand curve is the percentage change in
quantity demanded divided by the percentage change in price. *The elasticity of a demand curve
is the percentage change in quantity demanded divided by the percentage change in price. Here's
the formal definition
Percentage change: (New−Old)/Old
formula takes the absolute value
Revenue-Maximizing Prices and Demand Elasticity elasticity of 1~
And that illustrates how "optimal prices" are closely linked to elasticities. When demand
is elastic, you can't afford to raise prices. When demand is inelastic, you surely can!
elasticity of demand and revenue! When elasticity of demand = 1, revenue is maximized.
, HBX Core Economics for Managers
Questions And Answers Verified By Experts
When elasticity of demand is less than 1, demand is inelastic and lowering price will lower
revenue.
When elasticity of demand is greater than 1, demand is elastic and lowering price increases
revenue.
slope Recall, one formula for slope is Rise / Run
negative income elasticity of demand A negative income elasticity of demand implies that
a consumer will buy less of a good as his or her income increases. This could be the case for
cheaper foods such as rice. A consumer with a higher income might be able to afford more
expensive foods and switch to, say, quinoa, fish or steak instead.
Selection Bias asking people that are already bias SUCH AS loyal customers
two types of auctions Consider two common types of auctions. The first type of auction
we all know is the "open outcry" auction, where the auctioneer opens the bidding with a
minimum price and then each bidder can increase his or her bid. This is also known as an English
auction. It's the usual way to sell artwork or rare antiques. It's also how most charity auctions
work.
Questions And Answers Verified By Experts
A cautionary note: notice that price is not a factor that shifts the demand curve
diminishing marginal returns usually people are willing to pay less for the second ticket,
even less for the third, etc etc. that is diminishing marginal return, its like 8,6,4,2,...etc.
steep vs flat steep: quantity demanded is not sensitive to price
flat: customers are much more sensitive to price changes
But what factors determine whether the demand curve for a product is steep or flat? close
substitutes
necessity vs luxury
time horizon
inelastic vs elastic Colloquially, we sometimes refer to steep demand curves as "inelastic"
curves, and to flat demand curves as "elastic" ones. (In the next lesson, we'll get more precise
about this terminology and the concept of price elasticity.)
individual vs. aggregate demand curve both are downward sloping because diminishing
marginal returns
, HBX Core Economics for Managers
Questions And Answers Verified By Experts
demand curve tell you about price sensitivity? So far we have learned that a steep curve is
associated with low price-sensitivity, and that a flat curve is associated with high price-
sensitivity. However there is a problem with using slope as a measure of price sensitivity because
the slope is dependent on the units of measurement. In addition, we can't see how significant the
change in price is.
The Definition of Elasticity The elasticity of a demand curve is the percentage change in
quantity demanded divided by the percentage change in price. *The elasticity of a demand curve
is the percentage change in quantity demanded divided by the percentage change in price. Here's
the formal definition
Percentage change: (New−Old)/Old
formula takes the absolute value
Revenue-Maximizing Prices and Demand Elasticity elasticity of 1~
And that illustrates how "optimal prices" are closely linked to elasticities. When demand
is elastic, you can't afford to raise prices. When demand is inelastic, you surely can!
elasticity of demand and revenue! When elasticity of demand = 1, revenue is maximized.
, HBX Core Economics for Managers
Questions And Answers Verified By Experts
When elasticity of demand is less than 1, demand is inelastic and lowering price will lower
revenue.
When elasticity of demand is greater than 1, demand is elastic and lowering price increases
revenue.
slope Recall, one formula for slope is Rise / Run
negative income elasticity of demand A negative income elasticity of demand implies that
a consumer will buy less of a good as his or her income increases. This could be the case for
cheaper foods such as rice. A consumer with a higher income might be able to afford more
expensive foods and switch to, say, quinoa, fish or steak instead.
Selection Bias asking people that are already bias SUCH AS loyal customers
two types of auctions Consider two common types of auctions. The first type of auction
we all know is the "open outcry" auction, where the auctioneer opens the bidding with a
minimum price and then each bidder can increase his or her bid. This is also known as an English
auction. It's the usual way to sell artwork or rare antiques. It's also how most charity auctions
work.
