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In general elasticity is the measure of

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how much buyers and sellers respond to changes in the market conditions

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when studying how some event policy affects the a market, elasticity provides information on the

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direction and magnitude of the effect

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when consumers face rising gasoline prices, they typically

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reduce their quantity demanded more in the long run than in the short run

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economists compute in the price elasticity of demand as the

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percentage change in quanity demanded divided by the percentage change in price

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*suppose there is a 6 percent increase in the price of good x and a resulting 6 percent decrease in the quanity of x demande. what would the price elasticity of demand x be

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1

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*if the price elasticity of demand for a good is 1, then a 3 percent decrease in the price results in a

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3 percent increase in the quanity demanded

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which of the following is likely to have the most price elastic demand?

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tommy hilfiger jeans

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*demand is said to the price elastic if

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buyers respond substantially to changes in the price of the good

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demand is elastic if the price elasticity of demand is

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greater than 1

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income elasticity of demand measures how

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the quanity demanded changes as consumer income changes

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*for which of the following goods is income elasticity of demand likely the highest

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boats

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which of the following should be held constant when calculating an income of elasticity of demand?

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the price of the good

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a key determinant of the price elasticity of supply is the

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time horizon

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the price elasticity of supply measures how much

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the quantity supplied responds to changes in the price of the good

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if the price elasticity of supply for wheat is less that one, the supply of wheat is

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inelastic

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if the quanity supplied is the same regardless of price, then supply is

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perfectly inelastic

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elasticity, p. 90

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a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

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price elasticity of demand, p. 90

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a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

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total revenue, p. 93

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the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

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income elasticity of

demand, p. 97

demand, p. 97

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a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as

the percentage change in quantity demanded divided by the percentage change in income

the percentage change in quantity demanded divided by the percentage change in income

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cross-price elasticity of

demand, p. 99

demand, p. 99

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a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first

good divided by the percentage change in the price of the second good

good divided by the percentage change in the price of the second good

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price elasticity of supply, p. 99

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a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

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Summary of chapter 5

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• The price elasticity of demand measures how much the quantity demanded responds to changes in the price. Demand tends to be more elastic if close substitutes are available, if the good is a luxury rather than a necessity, if the market is narrowly defined, or if buyers have

substantial time to react to a price change.

• The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. If quantity demanded moves proportionately less than the price, then the elasticity is less than 1, and demand is said to be inelastic. If quantity demanded moves proportionately more than the price, then the elasticity is greater than 1, and demand is said to be elastic.

• Total revenue, the total amount paid for a good, equals the price of the good times the quantity sold. For inelastic demand curves, total revenue rises as price rises. For elastic demand curves, total revenue falls as price rises.

• The income elasticity of demand measures how much the quantity demanded responds to changes in consumers' income. The cross-price elasticity of demand measures how much the quantity demanded of one good responds to changes in the price of another good.

• The price elasticity of supply measures how much the quantity supplied responds to changes in the price. This elasticity often depends on the time horizon under consideration. In most markets, supply is more elastic in the long run than in the short run.

• The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. If quantity supplied moves proportionately less than the price, then the elasticity is less than 1, and supply is said to be inelastic. If quantity supplied moves proportionately more than the price, then

the elasticity is greater than 1, and supply is said to be elastic.

• The tools of supply and demand can be applied in many different kinds of markets. This chapter uses them to analyze the market for wheat, the market for oil, and the market for illegal drugs.

substantial time to react to a price change.

• The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. If quantity demanded moves proportionately less than the price, then the elasticity is less than 1, and demand is said to be inelastic. If quantity demanded moves proportionately more than the price, then the elasticity is greater than 1, and demand is said to be elastic.

• Total revenue, the total amount paid for a good, equals the price of the good times the quantity sold. For inelastic demand curves, total revenue rises as price rises. For elastic demand curves, total revenue falls as price rises.

• The income elasticity of demand measures how much the quantity demanded responds to changes in consumers' income. The cross-price elasticity of demand measures how much the quantity demanded of one good responds to changes in the price of another good.

• The price elasticity of supply measures how much the quantity supplied responds to changes in the price. This elasticity often depends on the time horizon under consideration. In most markets, supply is more elastic in the long run than in the short run.

• The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. If quantity supplied moves proportionately less than the price, then the elasticity is less than 1, and supply is said to be inelastic. If quantity supplied moves proportionately more than the price, then

the elasticity is greater than 1, and supply is said to be elastic.

• The tools of supply and demand can be applied in many different kinds of markets. This chapter uses them to analyze the market for wheat, the market for oil, and the market for illegal drugs.