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Market analysis- 220 > chapter 2 from class: elasticity > Flashcards

chapter 2 from class: elasticity Flashcards

1
Q

what does elasticity measure?

A

how much one variable responds to changes in another variable

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2
Q

what is elasticity?

A

a numerical measure of the responsiveness of Qd or Qs to one of its determinants

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3
Q

price elasticity

A

measures how much Qd responds to a change in P

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4
Q

how is the price elasticity measured considering we have two points given or that we can find (arc elasticity)

A

(percentage change in quantity demanded) / (percentage change in price)

= ((πœŸπ‘Έπ‘«)/𝑸𝑫 )/(πœŸπ‘·/𝑷)

= ((πœŸπ‘Έπ‘«)/πœŸπ‘·) * (𝑷/𝑸𝑫)

πœŸπ‘Έπ‘« is the change in Q

πœŸπ‘· is a change in price

𝑷 is the midpoint price

𝑸𝑫 is the midpoint quantity demanded

(πœŸπ‘Έπ‘«)/𝑸𝑫 ) is the percentage change of quantity demanded

(πœŸπ‘·/𝑷) is the percentage change in price

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5
Q

how to measure point elasticity of price elasticity of demand?

A

((πœŸπ‘Έπ‘«)/πœŸπ‘·) * (𝑷/𝑸𝑫)

(πœŸπ‘Έπ‘«)/πœŸπ‘·) is the slope of the Demand curve

𝑷 is the price at that point

𝑸𝑫 is the quantity demanded at that point

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6
Q

what is the difference between arc elasticity and point elasticity?

A

point elasticity has only one point given (which is the equilibrium) and the slope of the curve

arc elasticity only gives you the midpoint as point and you needs two points to find the slope

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7
Q

midpoint method to calculate percentage changes? why us this instead?

A

imagine you go from point A to point B, the elasticity won’t be the same to a scenario where you went from point B to point A

so we instead use the midpoint method

((end value – start value) / (midpoint))

  • 100%
    midpoint: number halfway between the start & end values, the average of those values
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8
Q

what does the price elasticity of demand depend on?

A

the extent to which close substitutes are available

whether the good is a necessity or a luxury

how broadly or narrowly the good is defined

the time horizon – elasticity is higher in the long run than the short run

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9
Q

true or false

The price elasticity of demand is closely related to the slope of the demand curve

A

true

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10
Q

The flatter the curve, the bigger the elasticity or the smaller the elasticity?

A

the bigger the elasticity

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11
Q

The steeper the curve, the bigger the elasticity or the smaller the elasticity?

A

he smaller the elasticity

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12
Q

perfectly inelastic demand

A

price elasticity of demand = 0

demand curve is perfectly vertical

Consumers’ price sensitivity: none

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13
Q

inelastic demand

A

price elasticity of demand < 1

demand curve is relatively steep

Consumers’ price sensitivity: relatively low

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14
Q

unit elastic demand

A

price elasticity of demand = 1

demand curve is intermediate slope

Consumers’ price sensitivity: intermediate

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15
Q

elastic demand

A

price elasticity of demand > 1

demand curve is relatively flat

Consumers’ price sensitivity: relatively high

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16
Q

perfectly elastic demand

A

price elasticity of demand = infinity

demand curve is horizontal

Consumers’ price sensitivity: extreme

17
Q

is the elasticity as constant as a curves slope?

A

nah boy

it will change along the slope

higher on top of demand curve

lower at bottom of demand curve

18
Q

how to find parameters a, b, c, and d based on the know parameters of Es, Ed, P, and Q

A

Demand: Qd = a - bP

Supply: Qs = c + dP

d: slope for supply
- b: slope for demand

Ed = -b(P/Q*)

Es = d(P/Q*)

19
Q

what does the price elasticity of supply measure?

A

measures how much Qs responds to a change in P

it measures sellers’ price-sensitivity

20
Q

how to calculate price elasticity of supply?

A

(Percentage change in Qs) /(Percentage change in P)

= ((πœŸπ‘Έπ‘Ί)/𝑸𝑺 )/(πœŸπ‘·/𝑷)

= ((πœŸπ‘Έπ‘Ί)/(πœŸπ‘·))*(𝑷/𝑸𝑺)

21
Q

true or false

The slope of the supply curve is closely related to price elasticity of supply

A

true

22
Q

The flatter the curve, the bigger the elasticity or smaller the elasticity

A

the bigger

23
Q

The steeper the curve, the bigger the elasticity or smaller the elasticity

A

the smaller

24
Q

perfectly inelastic supply

A

price elastic of supply = 0

supply curve is vertical

sellers price sensitivity: none

25
Q

inelastic supply

A

price elastic of supply < 0

supply curve is relatively steep

sellers price sensitivity: relatively low

26
Q

unit elastic

A

price elastic of supply = 1

supply curve has an intermediate slope

sellers price sensitivity: intermediate

27
Q

elastic

A

price elastic of supply > 1

supply curve is relatively flat

sellers price sensitivity: relatively high

28
Q

perfectly elastic

A

price elastic of supply = infinity

supply curve is horizontal

sellers price sensitivity: extreme

29
Q

why does supply elasticity lower the higher you go up the supply curve?

A

due to capacity limits

30
Q

income elasticity of demand

A

measures the response of Qd to a change in consumer income

Percent change in Qd)/Percent change in income

31
Q

what type of good if income elasticity is > 0

A

normal good

32
Q

what type of good if income elasticity is > 1

A

luxury good

33
Q

what type of good if income elasticity is > 0 but < 1

A

necessity

34
Q

what type of good if income elasticity is < 0

A

inferior good

35
Q

Cross-price elasticity of demand

A

measures the response of demand for one good to changes in the price of another good

(% change in Qd for good 1)/(% change in price of good 2)

36
Q

cross price elasticity for substitute goods

A

cross-price elasticity > 0

an increase in price of beef causes an increase in demand for chicken

37
Q

cross price elasticity for complement goods

A

cross-price elasticity < 0

an increase in price of computers causes decrease in demand for software

38
Q

when demand is inelastic, will an increase in price decrease or increase revenue?

A

increase revenue

Market analysis- 220 (41 decks)

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