Upgrade to remove ads
Only $2.99/month

Elasticity

Terms in this set (77)

Income Elastictity of Demand
measure of the responsiveness of demand for a good to a change in income
Cross Elasticity of Demand
A measure of the responsiveness in quantity demanded of one good to changes in the price of another good.
Elasticity of Supply
A measure of the way quantity supplied reacts to a change in price
monetary supply
when the price of a good changes, the immediate response of the quantity supplied is determined by the...
inelastic - fruit
elastic - long distance phone calls
short run supply
shows the relationship between the market price of a product and the quantity of output supplied by a firm in the short run
long run supply
The response of the quantity supplied to a price change after all the technologically possible ways of adjusting supply have been exploited
total revenue test
a method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price, when all other influences on the quantity sold remain the same
PxQ
inelastic demand
a demand with a price elasticity between 0 and 1; the percentage change in the quantity demanded is less than the percentage change in price
elasticity of demand
the responsiveness of the quantity demanded of a good to a change in its price, other things remaining the same
price elasticity of demand
a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyers plans remain the same
perfectly inelastic demand
demand with a price elasticity of zero, the quantity demanded remains constant when the price changes
unit elastic demand
demand with a price elasticity of 1, the percentage change in the quantity demanded equals the percentage change in price
elastic demand
demand with a price elasticity greater than 1; other things remaing the same, the percentage change in the quantity demanded exceeds the percentage change in price
income elasticty of demand
the responsiveness of demand to a change in income, other things reaming the same. it is calculated as the percentage change in quantity demanded divided by the percentage change in income
total revenue
the value of a firms sales. it is calculated as the price of the good multiplied by the quantity sold
The price elasticity of demand measures the responsiveness of the
quantity demanded of a good to a change in the price of the good, ceteris paribus.
If the quantity demanded of chocolate chip cookies falls from 10 pounds to 5 pounds when the price of the cookies rises from $4.00 to $5.00, the price elasticity of demand is
3.00
Suppose the price elasticity of demand for pizza is 2.00. Then if the price of pizza rises by 10 percent, the quantity of pizza demanded decreases by ____ percent.
20.0
If the price elasticity of demand is 3.5, an increase in price will
decrease total revenue.
If a price cut decreases total revenue, demand is
inelastic.
Factors that influence the elasticity of demand include all of the following except the
resource substitution possibilities.
The demand for a good that has a lot of close substitutes is likely to
be elastic.
The cross elasticity of demand for two substitute goods is
greater than zero.
The income elasticity of demand for an inferior good is
less than zero.
After a price change, in the long run the demand for the good becomes
more elastic.
perfectly elastic demand
demand with an infinite price elasticity, the quantity demanded changes by an infinitely large percentage in response to a tiny price change
as 10 percent hike in the price of a textbook decreases the quantity demanded by 2 percent . the price elasticity of demand for textbook is
.2
The quantity of new cars increases by 5 percent. if the price elasticity of demand for new cars is 1.25, the price of the new car will
fall by 4 %
business people often speak about price elasticity without actually using the term. Which statement describes a good with an elastic demand?
"my customers are real shoppers. After I cut my prices just a few cents below those my competitors charge, customers have been flocking to my store and sales are blooming."
for a perfectly vertical demand curve, the price elasticity of demand
equals 0
if the demand for a good is perfectly elastic, then its demand curve
is horizontal
the demand for a good is more price inelastic if
it has no subsittues
which of the following is likely to have the larger price elasticity of demand
a new ford mustang
suppose that the income elasticity of demand for an apartment is -.2. this value indicates that
apartments are inferior goods
beans are inferior good, chicken is a normal good, when peoples income rise the demand for beans ____ and the demand for income _____
decreases, increases
a 10 percent hike in income increases the demand for coffee by 3 percent, then the income inelasticity of demand for coffee is
.3
all normal goods
positive income elasticity's of demand
for which of the following pairs of goods in the cross elasticity of demand positive?
beef and chicken
a 10% increase in the price of pepsi increases the deamdn for a coca cola by 50 % thus the cross elasticity of demand between pepsi and coke is
5.0
a fall in the price of a paper back book from $6 go $4 causes a decrease in the quantity of magazines demanded from 1,100 to 900. what is the cross elasticity of demand between books and magazines
.5
suppose that the price elasticity of supply for oil is .1. then the price of oil rises by 20 percent, the quantity of oil supplied will increase
by 2 percent
when the price of a CD is $13 per CD, 39000000 are supplied per year, when the price is 15, 41000000 are supplied. what is the elasticity supply?
.35
If the long run supply of rice is perfectly elastic, then
in the long run, an increase in the demand for rice leaves the rice of rice is unchanged
the elasticity of supply does not depend on
the fraction on income spent on a good.
elasticity equals zero
perfectly inelastic demand
demand curve is vertical
elasticity is less than one, greater than zero
inelastic demand
when elasticity equals is greater than 1 and less than infinity
elastic demand
elasticity equals infinity
perfectly elastic demand, demand curve in horizontal
price elasticity of demand depends on factors
-closeness of substitutes (closer the good higher elasticity)
-propitiation on income spent on the good (greater proportion of income spent on good, greater the elasticity)
-time elapsed since the price change (the longer time since price changed, the larger the elasticity of demand)
when total revenue test is inelastic (<1)
a decrease in total revenue
when total revenue test is unit elastic (elasticity =1)
no change in total revenue
when total revenue test is Elastic (elasticity >1)
an increase in total revenue
income elasticity >1
normal good, income elastic
0<income elasticity < 1
normal good, income inelastic
income elasticity < 0
inferior good
when goods are subsititutes
cross elasticity >0
when the goods are compliments
cross elasticity <0
Price elasticity of supply depends on
- the ease at which additional resources can be substituted in production process
- time frame for supply decision
momentary supply
shows the immediate response to a price change
the smallest value for the price elasticity of demand, 0, means demand is perfectly inelastic
the largest, infinity, indicates perfectly elastic demand
demand is elastic when
price elasticity of demand exceeds 1.0
if something has close subsitiutes
the demand is probably elastic
as more time passes, more changes in demand can ocur
so demand becomes more elastic
moving downward along a linear demand curve
price elasticity falls
when the elasticity of supply equals zero
the supple is perfectly inelastic
when a small cut in price increases the quantity demanded substantially
the demand is elastic
when demand is perfectly elastic a very small rise in the price decreases the quantity demanded to zero
which is the situation with a horizontal demand curve
The more narrowly defined the good
the larger the price elasticity of demand
above the midpoint of a linear demand curve
the price elasticty of demand is elastic
if demand is unit price elastic, a change in the price of the good creates an offsetting change in he quantity demanded
total revenue does not change
if the demand is inelastic, the percentage rise in price exceeds the percentage decrease in quantity demanded
total revenue rom sales of the good increase
when the demand is elastic, the percentage increase in the quantity demanded exceeds the percentage fall in the price
total revenue rises
when demand is elastic, a rise in the price of the good decreases the quantity demanded by proportionally more
total revenue falls when the price is boosted
when an increase in the price of a good increases the expenditure on the good
your demand for the good is inelastic
the cross elasticity of demand is positive
for substitutes
when the supply is perfectly elastic, an increase in demand has no effect on the equilibrium price
...
the proportion of income spent on the good affects the price elasticity of demand, not the price elasticity of supply
...
THIS SET IS OFTEN IN FOLDERS WITH...