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Economics > Chapter 3.1 > Flashcards

Chapter 3.1 Flashcards

1
Q

Price elasticity of demand

A

A measure of the responsiveness of the quantity of a good demanded to changes in its price

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2
Q

If quantity demanded is highly responsive to a change in price, demand is

A

Elastic

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3
Q

If quantity demanded is not very responsive to a change in price, demand is

A

Inelastic

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4
Q

Formula to calculate PED

A

Percentage change in quantity demanded over percentage change in price

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5
Q

When is demand price inelastic?

A

When PED <1

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6
Q

When is demand price elastic?

A

When PED >1

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7
Q

When is demand unit elastic?

A

When PED =1

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8
Q

When is demand perfectly inelastic?

A

When PED =0

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9
Q

When is demand perfectly elastic?

A

When PED = infinity

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10
Q

How do you tell which demand curve is more elastic? What are the assumptions?

A

The flatter one is more elastic and the steeper one is more inelastic, only when the curves intersect

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11
Q

On any downward-sloping straight line demand curve, what part of it is price elastic?

A

When the price is high and quantity is low

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12
Q

On any downward-sloping straight line demand curve, what part of it is price inelastic?

A

When the price is low and quantity is large

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13
Q

On a downward-sloping straight line demand curve, when is demand unit elastic?

A

At the midpoint

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14
Q

Why shouldn’t an entire demand curve be called elastic or inelastic?

A

Elasticity is only relative to certain portions of the demand curve

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15
Q

Determinants of price elasticity of demand

A

Number and closeness of substitutes
Necessities vs luxuries
Length of time
Proportion of income spent on a good

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16
Q

Necessities

A

Goods or services considered to be essential or necessary in our lives

17
Q

Luxuries

A

Goods or services that are not necessary or essential

18
Q

Total revenue

A

The amount of money received by firms when they sell a good or service

19
Q

When demand is elastic, an increase in price causes a __ in total revenue while a decrease in price cause a __ in total revenue

A

fall, rise

20
Q

When demand is inelastic, an increase in price causes an __ in total revenue while a decrease in price causes a __ in total revenue

A

Increase, fall

21
Q

When demand is unit elastic, what is the effect of a change in price on total revenue?

A

There is no effect

22
Q

The lower the price of elasticity of demand for taxed goods, the __ the government tax revenues

A

Greater

23
Q

Primary commodity

A

A good that comes directly from the use of natural resources

24
Q

Manufactured product

A

A good that is produced by labor usually working together with capital as well as raw materials

25
Q

Why do many primary commodities have a relatively low PED?

A

Because they are necessities and have no substitutes

26
Q

Why are the PED of manufactured products relatively high?

A

They usually have substitutes

Economics (81 decks)

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