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definition of elasticity
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the ration of a percent change in dependent variable to a change in the independent
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definition of price elasticity of demand
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the percent change in quantity demanded dividend by the percent change in price
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definition of total revenue
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price per unit times number of units sold
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definition of price elastic
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the absolute value of price inelasticity demand > 1
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definition of unit price elastic
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the absolute value price inelastic demand = 1
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definition of price inelastic
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the absolute value in price inelastic demand < 1
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demand is price inelastic when...
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given percent change in price results in smaller percent change in quantity demanded
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normal good pattern with demand and income
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as income increases, demand increases
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inferior good pattern with demand and income
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as income increases, demand decreases
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income elasticity of a normal good
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greater than 0
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price elasticity of supply
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greater than 0
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cross-price elasticity of demand for a pair of complements
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less than 0
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cross-price elasticity of demand for a pair of substitutes
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greater than 0
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when demand is unit elastic, the relationship of percent change in quality demanded and percent change in price is...
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change in quantity demanded is equal to the percentage change in price
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If the price elasticity of demand is equal to -0.5, then a 10 percent decrease in price will cause the quantity demanded to increase by 5 percent.
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understand the bold terms
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Suppose that a 5 percent increase in the price of good X causes a 2.5 percent decrease in the quantity demanded of good X and 10 percent increase in quantity supplied of good X. For good X, demand is inelastic, and supply is elastic.
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understand the bold terms
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perfectly inelastic curve
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vertical line
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perfectly elastic curve
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horizontal line
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elastic curve
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slightly off of horizontal balance
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inelastic curve
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steep, slightly off vertical balance
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True or False: if Good A has a high price elasticity of demand, it likely has many substitutes
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TRUE
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True or False: if a buyer buys a good every morning regardless of price, the consumer's demand for coffee would be _________ ________.
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perfectly inelastic
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with the less elastic demand is...
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the greater the change in price
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total revenue will increase if price...
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rises and demand is elastic
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pattern of total revenue:
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Price Elastic:
- Increase in price is decrease in total revenue
- decrease in price increases total revenue
TR moves in direction of quantity change
Price Inelastic
- Increase in price increases total revenue
- decrease in price decreases total revenue
TF moves in direction of price change
Unit Price Elastic
- increase in price will not change total revenue
- decrease in price will not change total revenue
TR does not change as price changes
- Increase in price is decrease in total revenue
- decrease in price increases total revenue
TR moves in direction of quantity change
Price Inelastic
- Increase in price increases total revenue
- decrease in price decreases total revenue
TF moves in direction of price change
Unit Price Elastic
- increase in price will not change total revenue
- decrease in price will not change total revenue
TR does not change as price changes
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Along a linear demand curve, TR is greatest where demand is...
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unit elastic
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definition of arc price elasticity
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the percent changes relative to the average value of each variable between two points
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if Good A has inelastic puppy, therefore...
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producers are relatively insensitive to a change in the price of the product
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