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Econ 102 > Chapter 19: Demand and Supply Elasticity > Flashcards

Chapter 19: Demand and Supply Elasticity Flashcards

1
Q

What is elasticity?

A

measures relative response of a quantity (either supplied or demanded) to change in something else

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2
Q

Midpoint Formula

A

(new-old)/(new+old/2)

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3
Q

Formula for elasticity

A

% change in quantity/ % change in something else

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4
Q

Formula elasticity of demand

A

%change in quantity of demand/ change in price

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5
Q

Elasticity <1

A

inelastic

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6
Q

Elasticity =1

A

Unit Elastic

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7
Q

Elasticity >1

A

elastic

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8
Q

Formula Price elasticity of supply

A

% change in quantity supplies/ % change in price

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9
Q

More (and better) substitutes
larger share of budget
Longer time

A

more elastic it is

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10
Q

Fewer (and worse) substitutes
smaller share of budget
shorter time

A

less elastic it is`

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11
Q

Electricity is

A

very inelastic

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12
Q

Life-Saving Medicare is

A

most inelastic

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13
Q

$10 bill is

A

Most elastic

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14
Q

Banana is

A

Elastic

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15
Q

Ease of increasing/decreasing quantity supplied

A

acquisition of new resources or ability to reduce production without incurring large losses. “Flexibility” of producers

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16
Q

If price goes up

A

quantity demand goes down

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17
Q

Revenue =

A

Price x Quantity

18
Q

If something is inelastic

A

revenue increases

%change in Price> %change in quantity

19
Q

If something is unit elastic

A

Revenue is unchanged

%change in price= %change in quantity

20
Q

If something is elastic

A

revenue decreases

%change in price< %change in quantity

21
Q

Expenditure equals

A

Price x Quantity

22
Q

Elasticity <0

A

inferior goods (ex:Ramen, bus fare, generic brands)

23
Q

Elasticity >=0

A

normal goods

24
Q

<= Elasticity <=1

A

necessity goods (ex: bread, salt, gasoline (short term), eye glasses)

25
Q

Elasticity >1

A

Luxuries (ex: artwork, fancy cars, dinner at nice restaurants, name brands)

26
Q

Income Increases

A

You: buy fewer inferior goods, buy normal goods, and a bit more necessities, way more luxuries

27
Q

Income Decreases

A

You: buy more inferior goods, buy fewer normal goods, a bit less necessities, way less luxuries

28
Q

Cross Price Elasticity is used to

A

determine if goods are complements or substitutes

29
Q

Cross Price means

A

`“not own price”… the price of other goods

30
Q

Cross Price Elasticity (XY)

A

%change in quantity demand of X/ %change in price oy Y

31
Q

Cross Price Elasticity (YX)

A

%change in quantity demand of Y/ %change in price of X

32
Q

When CPE is positive

A

they are substitutes

P of y goes up, QD of x goes down and QD of y goes up (numerator has to be positive)

33
Q

When CPE is negative

A

they are compliments

P of y goes up, QD of y goes down and QD of x goes down (numerator has to be negative)

34
Q

Cross Price Elasticity Assumes…

A

that the reason for a price change in the other good changes due to supply shift

35
Q

Who has the most inelastic demand for airline tickets?

a) A business traveler who needs to get across the country to make a deal this week
b) a student planning a spring break trip in January
c) a mother planning on taking her family somewhere for a vacation

A

A business traveler who needs to get across the country to make a deal this week

36
Q

Use the midpoint formula to find the percentage change between a value of 300 and 400

A

29%

37
Q

What is the price elasticity of demand if a 10% increase in price leads to a 2% reduction in quantity demand?

A

0.2%

38
Q

Which Supply curve is most elastic

a) Day Laborers
b) Semi-Truck drivers
c) Lawyers
d) Doctors
e) High school teachers

A

Day Laborers

39
Q

A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to

a) Spend more on sugar
b) Spend less on sugar
c) Spend the same on sugar
d) Consume more goods like coffee and tea that are complements of sugar

A

Spend more on sugar

40
Q

What is the formula for every elasticity?

a) Δ quantity demanded / Δ price
b) %Δ quantity / %Δ price
c) %Δ price / Δ quantity
d) %Δ quantity / %Δ something else
e) %Δ something else / %Δ quantity

A

%Δ quantity / %Δ something else

41
Q

How do you know if a good is an inferior good?

a) Income elasticity is greater than one
b) Income elasticity is less than zero
c) Price elasticity of demand is negative
d) Price elasticity of supply is less than one

A

income elasticity is less than zero

Econ 102 (4 decks)

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