question
what does price elasticity of demand measure?
answer
the responsiveness of quantity demanded of a good to a change in its price
question
how do I find price elasticity of demand?
answer
divide percent change in quantity demanded by percent change in price
PEd = %∆Qd / %∆P
use the midpoint method to calculate percents:
(∆Q/Qavg) / (∆P/Pavg)
PEd = %∆Qd / %∆P
use the midpoint method to calculate percents:
(∆Q/Qavg) / (∆P/Pavg)
question
what is the basic form of the midpoint method for calculating percent changes?
answer
100% × (final value - initial value) / midpoint
but in all the calculations we are doing, the 100% will cancel out
but in all the calculations we are doing, the 100% will cancel out
question
is price elasticity of demand negative or positive?
answer
it will always come out negative, so just take the absolute value
question
what is inelastic demand?
answer
the percent change in quantity demanded is less than the percent change in price
1 > PEd > 0
demand curve is bowed inward and quite steep
1 > PEd > 0
demand curve is bowed inward and quite steep
question
what is perfectly inelastic demand?
answer
the quantity demanded is constant regardless of price
PEd = 0
demand curve is a vertical line
PEd = 0
demand curve is a vertical line
question
what is unit elastic demand?
answer
the percent change in quantity demanded equals the percent change in price
PEd = 1
demand is bowed inward; not too steep, not too straight
PEd = 1
demand is bowed inward; not too steep, not too straight
question
what is elastic demand?
answer
the percent change in the quantity demanded is greater than the percent change in price
PEd > 1
demand curve is bowed inward and not very steep
PEd > 1
demand curve is bowed inward and not very steep
question
what is perfectly elastic demand?
answer
the quantity demanded changes by an infinitely large percent to a tiny change in price
PEd = ∞
demand curve is a horizontal line
PEd = ∞
demand curve is a horizontal line
question
is elasticity the same as slope?
answer
NO
question
what is the price elasticity of a linear demand curve?
answer
at the midpoint, demand is unit elastic
above the midpoint, demand is elastic
below the midpoint, demand is inelastic
above the midpoint, demand is elastic
below the midpoint, demand is inelastic
question
what is total revenue?
answer
the price of a good × the quantity sold
question
what is the easiest way to find total revenue?
answer
it should be the area of the square formed by P*
and Q*
and Q*
question
what effect does a 1% price cut have on total revenue when demand is elastic?
answer
total revenue increases
question
what effect does a 1% price cut have on total revenue when demand is inelastic?
answer
total revenue decreases
question
what effect does a 1% price cut have on total revenue when demand is unit elastic?
answer
total revenue stays the same
question
what is price discrimination?
answer
charging less to people with elastic demands in order to increase total revenue
question
what is the relationship between the closeness of substitutes and elasticity of demand?
answer
the closer the substitutes, the more elastic the demand
question
what is the relationship between the portion of income spent on a good and elasticity of demand?
answer
the more expensive the good, the more elastic the demand
question
what is the relationship between the time elapsed since a price change and elasticity of demand?
answer
the longer the time elapsed since a price change, the more elastic the demand
question
what does cross-elasticity of demand measure?
answer
the responsiveness of demand for a good to a change in the price of a substitute or complement
question
how do I find cross-elasticity of demand?
answer
%∆Qd / %∆P of substitute or complement
(∆Q/Qavg) / (∆P/Pavg)
(∆Q/Qavg) / (∆P/Pavg)
question
is cross-elasticity of demand positive or negative?
answer
positive for a substitute and negative for a complement
question
what does income elasticity of demand measure?
answer
the responsiveness of demand for a good to a change in income
question
how do I find income elasticity of demand?
answer
%∆Qd / %∆income
(∆Q/Qavg) / (∆income/avgincome)
(∆Q/Qavg) / (∆income/avgincome)
question
is a normal good income elastic or income inelastic?
answer
BOTH
elastic if IEd > 1
inelastic if 0 < IEd < 1
elastic if IEd > 1
inelastic if 0 < IEd < 1
question
is an inferior good income elastic or income inelastic?
answer
neither (?????)
IEd is negative
IEd is negative
question
what does elasticity of supply measure?
answer
the responsiveness of the quantity supplied of a good to a change in price
question
how do I find elasticity of supply?
answer
%∆Qs / %∆P
(∆Q/Qavg) / (∆P/Pavg)
(∆Q/Qavg) / (∆P/Pavg)
question
what is perfectly inelastic supply?
answer
the quantity supplied is constant regardless of price
PEs = 0
supply curve is a vertical line
PEs = 0
supply curve is a vertical line
question
what is unit elastic supply?
answer
the percent change in quantity supplied equals the percent change in price
PEs = 1
supply curve is a straight line of any slope that begins at the origin
PEs = 1
supply curve is a straight line of any slope that begins at the origin
question
what is perfectly elastic supply?
answer
the quantity supplid changes by an infinitely large percent to a tiny change in price
PEs = ∞
supply curve is a horizontal line
PEs = ∞
supply curve is a horizontal line
question
if a good is produced with commonly available resources, what its elasticity of supply?
answer
very high
because the resources are being allocated to it instead of to something else made from the same resources
(if this is confusing read pg 95 paragraph 3)
because the resources are being allocated to it instead of to something else made from the same resources
(if this is confusing read pg 95 paragraph 3)
question
how can short-run supply be altered?
answer
through small moves like laying off or hiring workers
therefore, short-run supply is usually inelastic
therefore, short-run supply is usually inelastic
question
how can long-run supply be altered?
answer
through big moves like planting more trees
therefore, long-run supply is usually elastic
therefore, long-run supply is usually elastic
question
table on pg 97
answer
...
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
