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ECON 1000 > CHAPTER 5 > Flashcards

CHAPTER 5 Flashcards

1
Q

what is elasticity

A

measures how much quantity demanded responds to change in price

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2
Q

What is inelastic demand

A

small response in quantity demanded when price rises

value is less than 1

consumers have a low willingness to shop elsewhere

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3
Q

what is elastic demand

A

large response in quantity demanded when price rises

value is greater than 1

consumers have a high willingness to shop elsewhere

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4
Q

what is elasticity formula

A

price elasticity of demand =

percentage change in quantity demand /

percentage change in price

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5
Q

Unit elastic

A

value equal to 1

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6
Q

what is perfectly inelastic demand

A

price elasticity of demand equals 0 ; quantity demanded does not respond to change in price

Vertical line on graph

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7
Q

What is perfectly elastic demand

A

price elasticity of demand equals infinity; quantity demanded has an infinite response to any change in price

horizontal line on graph

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8
Q

More substitutes mean what

A

greater elasticity of demand

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9
Q

Total revenue formula

A

TR = P x Q

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10
Q

What happens if demand for a product is elastic

A

Total revenue increases

the percentage increase in quantity is greater than the percentage decrease in price.

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11
Q

What happens if a product is inelastic

A

Total revenue decreases

the percentage increase in quantity is less than the percentage decrease

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12
Q

Elasticity supply

A

measures by how much quantity supplied responses to change in price

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13
Q

inelastic supply

A

small response in quantity supplied when price rises

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14
Q

elastic supplied

A

large response in quantity supplied when price rises

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15
Q

Perfectly inelastic supply

A

value equals exactly 0

vertical line on graph

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16
Q

perfectly elastic supply

A

infinite value
horizontal line on graph

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17
Q

Elasticity of supply formula 1 midpoint formula

A

percentage change in quantity supplied /
percentage change in price

Q1 -Q0 / (Q1+Q0 /2)
/
P1-P0 / (P1+P1/2)

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18
Q

Cross elasticity of supply formula

A

percentage change in quantity demanded /

percentage change in price of a substitute or complement

Q1 -Q0 /
(Q1+Q0/2)

/

P1-P0 /
(P0+P1)/2

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19
Q

What is cross elasticity of supply

A

measures the responsiveness of the demand for a product to a change I the price of a substitute or complement

20
Q

Substitutes cross elasticity

A

positive value

21
Q

complements

A

negative value

22
Q

income of elasticity of demand

A

measures the responsiveness of the demand for a product or service to a change in income

23
Q

income elasticity of demand formula

A

percentage change in quantity demanded /

percentage change in income

24
Q

normal good

A

positive value

25
Q

inferior good income elasticity

A

negative value

26
Q

income inelastic demand

A

positive value less than 1

27
Q

income elastic demand

A

positive value greater than 1

28
Q

What influences price elasticity of demand

A

Time to adjust
Substitutes
Proportion of income spend on a product— greater proportion of income means spent more elastic demand

29
Q

When is total revenue decreased when price is raised slightly

A

When Demand is elastic

30
Q

When is totally revenue increased when price is raised slightly

A

When demand is inelastic

31
Q

When priced is lowered slightly and total revenue is increased what is demand

A

Elastic

32
Q

What is an important factors affecting price elasticity of supply

A
  • The length of time at the producers disposal
  • availability of additional inputs - more available inputs means more elastic supply

Like products that have shorter times for Production have a more elastic supply

33
Q

Elasticity of supply formula

A

Percentage change in quantity supplied /

Percentage change in price

If the percentage change in supplied is less than the percentage change in price the elasticity of supply is inelastic. Quantity supplied is unresponsive to change in price

34
Q

How to get % change in quantity supplied

A

Elasticity of supply x % change in price

35
Q

Finding percentage change

A

Subtract earlier value from new one,

Divide the new number (difference) from first value and multiply by 100

36
Q

Who pays tax when demand is inelastic

A

The buyers

37
Q

Who pays tax when demand is elastic

A

The sellers

38
Q

Who pays the tax when supply is inelastic

A

The sellers

39
Q

Who pays the tax when supply is elastic.

A

Smaller portion paid by Buyers

40
Q

If demand is perfectly elastic who pays tax

A

Entirely by producers

41
Q

If demand is perfectly inelastic who pays tax

A

Entirely the consumer

42
Q

If supply is perfectly inelastic who pays the tax

A

Entirely by Producers

43
Q

If supply is perfectly elastic who pays the tax

A

The consumer

44
Q

Elasticity and tax

A

Smaller portion of tax paid by producer when demand is inelastic buyers pay more

The more elastic demand is producer or seller pays more tax buyers pay less

The more elastic supply is the more seller pay tax buyers pay less

The more inelastic supply is the buyers pay more tax seller pay less

45
Q

A straight line demand curve

A

Price elasticity if demand decreases

ECON 1000 (12 decks)

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