question
Reminder: What does the law of demand say?
answer
When the price falls, the quantity demanded will rise
question
What is the price elasticity of demand?
answer
It measures how responsive buyers are to price changes by measuring the percent the quantity demanded will change in response to a 1% price change.
question
How is the responsiveness measured when the quantity demanded by consumers respond to a price change?
answer
The ratio of percent change in quantity demanded to the percent change in price as you move along the demand curve.
question
What is the ratio equation to measure the price elasticity of demand?
answer
Price elasticity of demand = Percent change in quantity demanded / Percent change in price
question
The law of demand tells us that price and quantity changes always move in the opposite direction: When price goes up, the quantity demanded goes ___________, and when the price goes down, the quantity demanded goes ___________.
answer
down, up
question
What is the absolute value of the price elasticity demand?
answer
the price elasticity of demand with the negative sign dropped (|elasticity|)
question
Why is the absolute value of the price elasticity demand useful?
answer
It helps distinguish that a larger elasticity is a larger percent change in quantity demanded i.e -5 and -0.5
question
What does it mean if demand is elastic?
answer
when buyers are very responsive to price change, or whenever the absolute value of the percent change in quantity demanded is larger than the absolute value of percent change in price.
question
What does it mean if demand is inelastic?
answer
when buyers are not very responsive to price changes, or whenever the absolute value of the percent change in quantity demanded is smaller than the absolute value of the percent change in price.
question
What happens when the absolute value of the price elasticity of demand is exactly equal to 1?
answer
It is neither elastic nor inelastic.
question
T/F An elastic demand curve is relatively flat, while and inelastive demand curve is relatively steep.
answer
TRUE
question
T/F Elasticity is the same thing as slope (rise over run, the change in price divided by the change in quantity demanded).
answer
FALSE
question
When the demand curve is completely horizontal, it means that the price elasticity is _______________.
answer
infinite
question
When the demand curve is completely vertical, it means that the price elasticity of demand is __________.
answer
zero
question
Reminder: What does the opportunity cost principle say?
answer
To figure out the benefits if buying something, you need to compare it to the next best alternative.
question
Therefore, elasticity of demand depends on...
answer
What a person can substitute for it.
question
What are the four factors of demand elasicity?
answer
...
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