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Microeconomics > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Total expenditure (“function”)

A

TE = TR = P*Q

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2
Q

Price sensitivity

A

Elasticities

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3
Q

Price elasticity of demand

A

The percentage change in the quantity demanded that results from a on percent change in price

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4
Q

Highly responsive to price change

A

Elastic

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5
Q

Highly unresponsive to price change

A

Inelastic

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6
Q

When is the demand for a good elastic?

A

The demand for a good is said to be elastic, with respect to price if its price elasticity is more than 1

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7
Q

When is the demand for a good inelastic?

A

The demand for a good is said to be inelastic, with respect to price if its price elasticity is less than 1

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8
Q

When is demand unit elastic?

A

demand is unit elastic with respect to price if its price elasticity is equal to 1

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9
Q

Formula price elasticity

A

Percentage change in Q / percentage change in P

(TQ/Q)/(TP/P)

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10
Q

Slope for the straight line equation

A

TQ/TP
P=a-bQ -> b = TQ/TP

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11
Q

Formula elasticity and slope

A

P/Q * 1/ Slope

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12
Q

Two polar cases

A

Two extreme cases of elasticity
- Perfectly elastic demand (E=infinity)
- Perfectly inelastic demand (E=0)

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13
Q

The price elasticity of supply

A

The percentage change in quantity supplied that occurs in response to a one percent change in price

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14
Q

Formula for price elasticity of supply

A

E = P/Q *1 / Slope
Same as demand

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15
Q

Can price elasticity of demand be positive/negative?

A

Price and quantity are always positive, as is the slope of the typical supply curve, which implies that price elasticity of supply will be a positive number at every point

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16
Q

Cross-price elasticity of demand

A

If we change the price of one good (X), how will it affect the quantity of another good (Y)
The percentage change on quantity demanded of one good in response to a 1 percent change in the price of another good

17
Q

Cross price elasticity of demand for Substitute goods

A

Cross price elasticity of demand is positive

18
Q

Cross price elasticity of demand for Complement good

A

Cross price elasticity of demand is negative

19
Q

Income elasticity of demand

A

Is the percentage change in quantity demanded in response to a 1 percent change in income

20
Q

Formula Cross price E of D

A

= (TQx/Qx)/(TPy/Py)

21
Q

Formula Income E of D

A

= (TQ/Q)/(T Income/Income)

22
Q

Income elasticity for Normal goods

A

Income elasticity of demand is positive

23
Q

Income elasticity for Inferior goods

A

Income elasticity of demand is negative

Microeconomics (6 decks)

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