Chapter 5 Flashcards
What is the law of demand?
- High price low demand
- low price high demand
What is the law of Supply?
- high price high quantity demand
- love price low quantity demand
It is a measure of how sensitive a product is to price changes
elasticity
It is how much th quantity demanded of a good responds to a change in the price of that good
Price elasticity of demand
Price elasticity of demand equation
percentage change in Quantity demand / percentage change in price
Standard method of computing percentage change equation
end value - start value / start value then multiply to 100%
If value is less than 1 is it Elastic, Inelastic, or Unitary?
Inelastic
If value is greater than 1 is it Elastic, Inelastic, or Unitary?
Elastic
If value is equal to 1 is it Elastic, Inelastic, or Unitary?
Unitary
What is the midpoint method equation?
end value - start value / mean of end value and start value x 100%
What method do you use if you want to see the difference of elasticity depending on the direction or level of sensitivity?
Standard method
What method do you use if you want to see the elasticity of a product in any direction?
Midpoint method
Crossprice method
change q / change price multiplied by p2+p1 / q2 + q1
When a product has many different substitutes it has a high or low elasticity?
low elasticity
