question
Elasticity
answer
a measure of how much one economic variable responds to changes in another economic variable
question
price elasticity of demand
answer
the responsiveness of the quantity demanded to a change in price
question
Why do economists use percentage changes when measuring the price elasticity of demand instead of just using the demand curve slope?
answer
the slope is sensitive to the units chosen for both the quantity demanded and the price. THE % CHANGE IS NOT
If we measure price in cents, rather than in dollars, the slope is
-0.1/1 = -0.1
If we measure price in dollars and bottles in thousands, instead of millions, the slope is
-100/ 1 = -100
If we measure price in cents and bottles in thousands, the slope is
-100/100 = -1
If we measure price in cents, rather than in dollars, the slope is
-0.1/1 = -0.1
If we measure price in dollars and bottles in thousands, instead of millions, the slope is
-100/ 1 = -100
If we measure price in cents and bottles in thousands, the slope is
-100/100 = -1
question
Elastic Demand
answer
when the % change in quantity demanded is GREATER than the percentage change in price, so the price elasticity is GREATER than 1 in absolute value
question
Inelastic Demand
answer
When the % change in quantity demanded is LESS than the % change in price, so the price elasticity is LESS than 1 in absolute value
question
Unit Elastic Demand
answer
when the % change in the quantity demanded is EQUAL to the % change in price, so the price elasticity EQUALS 1 in absolute value
question
price elasticity of demand for a PRICE CUT
answer
the % change in price will be NEGATIVE, and the % change in quantity demanded will be POSITIVE
question
price elasticity of demand for a PRICE INCREASE
answer
the % change in price will be POSITIVE, and the % change in the quantity demanded will be NEGATIVE
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
