Ch 5 - Elasticity: A Measure of Response Flashcards
What is elasticity?
The ratio of the percentage change in a dependent variable to a percentage change in an independent variable.
What is the price elasticity of demand for a good or service?
It is e sub D, the percentage change in quantity demanded of a particular good or service divided by the percentage change in the price of that good or service, all other things unchanged.
The measure of elasticity, which is based on percentage changes relative to the average value of each variable between two points, is called…
Arc elasticity
If the absolute value of the price elasticity of demand is greater than 1, demand is termed…
Price elastic
If the value of price elasticity of demand is equal to 1, demand is termed…
Unit price elastic
If the absolute value of the price elasticity of demand is les than 1, demand is termed…
Price inelastic
Under what condition is the demand curve said to be perfectly inelastic?
Quantity consumed does not change as price changes.
What is the income elasticity of demand.
The percentage change in quantity demanded at a specific price divided by the percentage change in income that produced the demand change.
What is cross price elasticity of demand?
The responsiveness of demand for a good or service to a change in the price of another good or service.
The price elasticity of supply is…
The ration of the percentage change in qty supplied of a good or service to the percentage change in its price, all other things unchanged.
A positive income elasticity tells us that a good is (Normal/inferior)
Normal
A negative income elasticity tells us that a good is (Normal/inferior)
Inferior
A positive cross price elasticity tells us that two goods are (substitutes/complements)
Substitutes
A positive cross price elasticity tells us that two goods are (substitutes/complements)
Complements
