chapter 4 Flashcards

1
Q

types of elasticity

A
  • price elasticity of demand
  • price elasticity of supply
  • income elasticity
  • cross price elasticity
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2
Q

price elasticity of demand

A
  • measure of how much the quantity demanded of a good responds to a change in price
  • elastic when Qd responds strongly to a change in price and inelastic when Qd responds weakly to a change in price
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3
Q

determinants of the price elasticity of demand

A
  • substitution possibilities: elasticity high if its easy to sub between products
  • importance of product in consumer’s budget: items that take up a larger share have higher elasticity
  • time (short and long run): substitution takes time so elasticity higher in the long run
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4
Q

price elasticity coefficient

A
  • uses percentages so it’s a unit free measure, compares responsiveness cross products
  • eliminate negative so its easier to compare
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5
Q

possible elasticity cases

A
  • elastic: >1
  • perfectly inelastic when n=infinity
  • inelastic: <1
  • perfectly elastic when n=0
  • unitary elastic: 1
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6
Q

elasticity along a linear curve

A
  • negatively sloped linear demand curve has a constant slope but not constant elasticity
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7
Q

elasticity and the effect of a price change on total expenditure

A
  • n>1: price increase causes a reduction in TE, reduction causes an increase
  • n=1: price change causes no changes in TE
  • n<1: price increase causes an increase in TE, reduction cases a reduction in TE
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8
Q

price elasticity of supply (Ns)

A
  • measure of the responsiveness of quantity supplied to a change in the product’s price
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9
Q

determinants of supply elasticity

A
  • amount of time producers have to respond to a change in price
  • with time ease of substitution increases - increase in elasticity
  • how much more can be produced profitably depends on how easily producers can shift from the production to the one whose price has risen
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10
Q

excise tax

A
  • a tax on the sale of a particular product
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11
Q

excise tax and elasticity

A
  • when demand is inelastic burden is on consumers

- when supply is elastic the burden is on sellers

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12
Q

income elasticity

A
  • if Ny > 0 the good is normal

- if the Ny < 0 the good is inferior

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13
Q

normal goods w income elasticity

A
  • if income elasticity is positive but less than 1 demand is inelastic bc necessities
  • if the income elasticity is positive and greater than one demand income is elastic bc luxuries
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14
Q

cross elasticity

A
  • if Nxy > 0 then X and Y are subs

- if Nxy < 0 then X and Y are complements

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