question
Define Price elasticity of demand
answer
A measure of how responsible buyers are to price changes. It measures the percent change in quantity demanded that follows from 1% price change
question
define elastic
answer
When the absolute value of the percent change in quantity is larger than the absolute value of the percent change in price
question
Define inelastic
answer
When the absolute value of the percent chanage in quantity is smaller than the absolute value of the percent change in price
question
Suppose that the price of a good rises by 20%,causing the quantity demanded to fall by 5%. What is the absolute value of the price elasticity of demand?
A. 4
B. 0.25
C. −0.25
D. −4
A. 4
B. 0.25
C. −0.25
D. −4
answer
B. 0.25
question
Define elastic demand curves
answer
relatively flat
question
Define inelastic demand curves
answer
relatively steep
question
What is the formula for slope
answer
slope= Rise/ run=Change in price/ change in quantity
question
What is the formula for elasticity
answer
elasticity= % change in quantity/ % change in price
question
What are the 5 determinants of price elasticity of demand
answer
Elasticity is all about substitutability!
1. More competing products means greater elasticity.
2. Specific brands tend to have more elastic demand than categories of goods.
3. Necessities have less elastic demand.
4. Consumer search makes demand more elastic.
5. Demand gets more elastic over time.13
1. More competing products means greater elasticity.
2. Specific brands tend to have more elastic demand than categories of goods.
3. Necessities have less elastic demand.
4. Consumer search makes demand more elastic.
5. Demand gets more elastic over time.13
question
Key take- aways: Price elasticity of demand
answer
Price elasticity of demand
~ how buyers respond to a change in price. Elastic demand
~Buyers are very responsive to changes in price.
~ Visually, elastic demand curves are relatively flat.
~ Substitutes available. Inelastic demand
~Buyers are not responsive to changes in price.
~ Visually, inelastic demand curves are relatively steep.
~ Substitutes not available. Elasticity calculations
~ Use the midpoint formula when calculating percentage changes.
~ how buyers respond to a change in price. Elastic demand
~Buyers are very responsive to changes in price.
~ Visually, elastic demand curves are relatively flat.
~ Substitutes available. Inelastic demand
~Buyers are not responsive to changes in price.
~ Visually, inelastic demand curves are relatively steep.
~ Substitutes not available. Elasticity calculations
~ Use the midpoint formula when calculating percentage changes.
question
define elastic demand
answer
if the demand curve for your product is relatively elastic. Then you should lower the price of your good increase your total revenue
question
Define inelastic demand
answer
If the demand curve for your product is relatively inelastic. then you should raise the price of your good to increase your total revenue.
question
Key take-aways: Revenue and elasticity
answer
Total Revenue = price × quantity Revenue and Elastic Demand
~ Buyers are very responsive to changes in price.
~Lowering the price will result in a relatively big increase in quantity purchased.
~ Revenue will ultimately go up. Revenue and Inelastic Demand
~ Buyers are not responsive to changes in price.
~Raising the price will result in a relatively small decrease in quantity purchased.
~Revenue will ultimately go up.
~ Buyers are very responsive to changes in price.
~Lowering the price will result in a relatively big increase in quantity purchased.
~ Revenue will ultimately go up. Revenue and Inelastic Demand
~ Buyers are not responsive to changes in price.
~Raising the price will result in a relatively small decrease in quantity purchased.
~Revenue will ultimately go up.
question
Define cross-price elasticity of demand
answer
a measure of how responsive the demand of one good is to price change of another
question
When the price of hamburgers increased by10%, the quantity of hot dogs sold increased by5%. What is the cross-price elasticity of demand for hot dogs? Are hot dogs and hamburgers substitutes or complements?
A. 0.5; substitutes
B. 0.5; complements
C. 2; substitutes
D. 2; complements
A. 0.5; substitutes
B. 0.5; complements
C. 2; substitutes
D. 2; complements
answer
A. 0.5; substitutes
question
Define income elasticity of demand
answer
A measure of how responsive the demand for a good is to changes in income
question
Define price elasticity of supply
answer
a measure of how responsive sellers are to price changes
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