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Jason, a college student, mows lawns for families in his neighborhood.

Jason, a college student, mows lawns for families in his neighborhood. The going rate is $20 for each lawn-mowing service. Jason would like to charge $30 because he believes he has more experience mowing lawns than the many other high-schoolers who also offer the same service. What would happen if Jason raised his price if the market for lawn mowing services were perfectly competitive? Do the participants in the market agree that their experience is relevant if the market is perfectly competitive?
Refer to the graph below of a perfectly competitive market. How many units will the firm choose to sell, and at what price? In the short term, what will be the firm's total revenue, cost, and profit? If, at some point in the future, the market price fell below $6 (for example, where Point A is), what would the firm do?
Ed produces table lamps in the perfectly competitive desk lamp market.
Fill in the missing values in the following table.
Suppose the equilibrium price in the desk lamp market is $50. How many table lamps should Ed produce, and how much profit will he make?
If next week the equilibrium price of desk lamps drops to $30, should Ed shut down? Explain.

Full Answer Section

Necessity vs. Luxury: The classification of a good as a necessity or a luxury plays a vital role. Necessities, such as staple foods (e.g., bread, milk), essential utilities, or life-saving medications, typically exhibit more inelastic demand. Consumers need these goods for their basic well-being or survival and will likely continue to purchase them even if prices rise significantly. In contrast, luxury goods, which are non-essential items like high-end electronics, designer clothing, or expensive dining experiences, tend to have more elastic demand. Consumers can easily postpone, reduce, or forgo the purchase of luxuries when their prices increase.
Proportion of Income Spent on the Good: The larger the percentage of a consumer's income that is spent on a particular good, the more elastic its demand tends to be. A noticeable price change for a good that constitutes a significant portion of their budget will have a greater impact on their purchasing power, making them more sensitive to price fluctuations. Conversely, for inexpensive items that represent a negligible fraction of income (e.g., a single matchstick or a stick of gum), a price change will barely affect a consumer's budget, leading to more inelastic demand.

Applying these factors to a sweater from Banana Republic:

Let's consider how these factors would influence the price elasticity of demand for a sweater sold at Banana Republic:

Availability of Close Substitutes: A sweater from Banana Republic would likely face highly elastic demand due to the sheer abundance of close substitutes in the market. Consumers have a vast array of options for sweaters of similar style, material, and quality from numerous other retailers, including fast-fashion stores like Zara and H&M, competitors like Gap and Old Navy, department stores, and online marketplaces. If Banana Republic were to significantly increase the price of its sweaters, consumers could effortlessly switch to a less expensive or similarly priced alternative from another brand, making them highly responsive to price changes.
Necessity vs. Luxury: A sweater, especially one purchased from a fashion-focused retailer like Banana Republic, is generally regarded as a discretionary item or a "fashion necessity" rather than a fundamental necessity for survival. While basic clothing is essential, a specific brand-name sweater from Banana Republic is not. Consumers can easily delay its purchase, choose a more affordable option, or simply decide they do not need that specific sweater if its price rises. This categorization contributes to a more elastic demand for the product.
Proportion of Income Spent on the Good: For most consumers, a single sweater, even one from a brand like Banana Republic, represents a relatively small, but not entirely insignificant, proportion of their monthly income. While it's not a major expenditure like a car or rent, it's also not a trivial purchase like a candy bar. A noticeable price increase might cause consumers to reconsider their purchase, particularly if they are budget-conscious. This factor would contribute to a degree of elasticity, but perhaps less profoundly than the availability of substitutes given the moderate cost of a single sweater relative to overall income.

In summary, the demand for a sweater from Banana Republic would be characterized as quite elastic, primarily because of the extensive availability of substitutes and its nature as a discretionary fashion item.

Justin Bieber Exercise Video Elasticity of Demand Calculation

To calculate the price elasticity of demand (PED) for Justin Bieber's exercise video between the two given points, we will use the midpoint method, which provides a more accurate measure over a range of prices and quantities.

The formula for the midpoint method of PED is: $E_{d} = ( P ^{2} - P ^{1} ) / (( P ^{1} + P ^{2} ) /2 ) ( Q ^{2} - Q ^{1} ) / (( Q ^{1} + Q ^{2} ) /2 )$

Given:

Initial Quantity ( $Q_{1}$ ) = 100,000 subscriptions
New Quantity ( $Q_{2}$ ) = 60,000 subscriptions
Initial Price ( $P_{1}$ ) = $20
New Price ( $P_{2}$ ) = $30

Step 1: Calculate the percentage change in quantity demanded using the midpoint formula: Change in Quantity = $Q_{2} - Q_{1} = 60, 000 - 100, 000 = - 40, 000$ Average Quantity = $(Q_{1} + Q_{2}) /2 = (100, 000 + 60, 000) /2 = 160, 000/2 = 80, 000$ Percentage Change in Quantity = $- 40, 000/80, 000 = - 0.5$

Step 2: Calculate the percentage change in price using the midpoint formula: Change in Price = $P_{2} - P_{1} = 30 - 20 = 10$ Average Price = $(P_{1} + P_{2}) /2 = (20 + 30) /2 = 50/2 = 25$ Percentage Change in Price = $10/25 = 0.4$

Step 3: Calculate the Price Elasticity of Demand ( $E_{d}$ ):

Sample Answer

actors Determining Price Elasticity of Demand

The price elasticity of demand (PED) is a crucial economic measure that quantifies how sensitive the quantity demanded of a good is to a change in its price. Several key factors influence this sensitivity:

Availability of Close Substitutes: This factor is often the most significant determinant of demand elasticity. If consumers have many similar products or services to choose from when the price of a particular good increases, they can easily switch to an alternative. This high degree of choice makes the demand for the original good more elastic. Conversely, if there are few or no readily available substitutes, consumers have limited options, and their demand for the good tends to be more inelastic, as they are less able to avoid price increases.