Chapter 5 Flashcards
What is elasticity of demand refer to?
This is the measure of how responsive the quantity demanded is to a change in price.
In reference to the elasticity of demand the more responsive the item/good ……?
The more elastic the good is.
What is the equation for calculating the elasticity of demand?
% Change in quantity demanded / % change in the price
only using absolute value
What is the formula for calculating the % change?
New - Old / Old.
An elasticity demanded of 4 would indicate what?
for every 1% change in price the quantity demanded shifts 4 % in the opposite direction.
( BUYERS DREAM)
what does an elasticity demanded of .4 mean?
This means for every 1% change in price, the quantity demanded shifts .4% in the opposite direction.
( SELLERS DREAM)
What does the elasticity rule indicate?
The flatter the line the more elastic the good. (so long as both lines are linear and run through a common point.)
an E(d) of 0 indicates what?
The good is perfectly inelastic, meaning there is a zero percent change in quantity demanded for any price. This is a perfectly straight and vertical line
The easier it is to find substitutes the …….. the elasticity?
The greater the elasticity
An E(d) of OO (infinity) means what?
The good is perfectly elastic- there are tons of substitutes.
What is the equation to calculate total revenue?
TR= P x Q (price) (quantity)
How does time effect elasticity?
The more time -> the more substitutes -> the greater the elasticity.
Are luxuries typically elastic or inelastic?
Luxuries are elastic goods.
Things that are less elastic typically…?
- Have fewer substitutes.
- Short run (less time)
- Categories of product
- Necessities
- Small part of Budget
Things that are more elastic typically…?
- more substitutes
- long run (more time)
- Specific brands
- Luxuries
- Large part of the budget
an E(d) of 1 indicates the good is …?
Unit elastic
What does elasticity measure?
How Much Q goes down when P goes up.
What is elasticity of supply?
Measures how responsive the quantity supplied is to a change in price.
Is local or global supply more elastic?
Local supply is much more elastic
The supply of a Picasso painting is (Blank) and on a graph would be represented by (Blank)?
inelastic af, Picasso cannot paint anther painting, for he is dead and it would be represented by a straight vertical line.
The supply of toothpicks is (Blank) and on a graph would be represented by (Blank)?
The supply of toothpicks is perfectly elastic, and is represented by a straight horizontal line on the graph.
less elastic supply environments:
- Difficult to increase production at constant unit costs.
- Large share of market for inputs
- Global supply
- Short run
more elastic supply environments:
- easy to increase production at constant unit costs.
- small share of market for inputs.
- local supply
- long run.
What is the formula to calculate elastic supply?
Es = % change in Q(s) / % change in price.
What is cross elasticity referring to?
comparing two goods.
Et > 0 = ?
Et < 0 = ?
Et = 0 = ?
- ) Normal good
- ) Inferior good
- ) Necessity.
