Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Econ: Elasticity and Consumer Choice > Econ:Elasticity and Conumer Choice > Flashcards

Econ:Elasticity and Conumer Choice Flashcards

0
Q

Elasticity

highly Elastic

A

very responsive (sensitive)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

Elasticity

A
  • Measure of responsiveness
  • Degree of sensitivity
  • Measures how change in one variable affects another variable
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Elasticity

low elastice

A

not quite responsive (not very sensitive) ; inelastice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Price Elasticity of Demand (Ep)

A
  • the responsiveness of Qd of a commodity to the changes in its Price
  • how a consumer responds to a price change
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Elastic Demand

A

Very responsive (sensitive)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Inelastic Demand

A

Not very responsive (sensitive)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Elasticity is: (4)

A
  1. unit free measurement
  2. always analyzed in absolute terms
  3. Ep > 1 Elastic Demand
    Ep < 1 Inelastic Demand
  4. calculate using midpoint formula
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Ep > 1

A

% change Qd > % change P
Elastic
Relatively flat; more horizontal, the flatter the demand, the more elastic the demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Ep < 1

A 
% change Qd < % change P
Inelastic
The steeper (vertical) the demand, the more inelastic the demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Extreme Cases of Price Elasticity of Demand (3)

A
  1. perfectly elastic demand
  2. perfectly elastic demand
  3. unit elastic demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Perfectly Inelastic Ep

A

buyer does not respond to any price change
Ep=0
buyer will always purchase a fixed quantity
Demand curve is vertical

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Perfectly Elastic Demand Ep

A 
Infinite elasticity 
Ep= infinity
extremely sensitive to price changes
any price below P : buyer purchases extremely large Q
any price above P : buyer purchases 0 Q
Demand curve is horizontal
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Unit Elastic Demand Ep

A

% change Qd = % change P
Ep=1
fixed budget
total revenue remains constant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Determinate’s of Ep (4)

A
  1. The availability of substitute goods
  2. The percent of the budget the good takes
  3. Passage of Time
  4. The nature of the good
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Determinate of Ep : The availability of substitute goods

A
  1. more available substitute–> more Elastic Demand
    a lot of types of substitutes
  2. less available substitute–> more Inelastic Demand
    not a lot of types of substitutes
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Determinate of Ep : The percent of the budget that good takes

A
  1. greater %budget good takes–> more Elastic Demand

2. less %budget good takes–> more Inelastic Demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Determinate of Ep : Passage of Time

A
  1. more time buyer has to adjust to P change–> more Elastic Demand
  2. less time buyer has to adjust to P change–> more Inelastic Demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Determinate of Ep : The nature of the good

A
  1. luxury good–> Elastic Demand

2. Necessity good–> Inelastic Demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Elasticity of Demand Ep and Total Revenue Test

A

Firm tries to predict how a price change effects the total revenue
TR = P x Q
TR = price per unit x number of units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Rules for the Total Revenue Test (3)

A
  1. Elastic Demand
  2. Unit Elastic Demand
  3. Inelastic Demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Rules for Revenue Test : Elastic Demand

A

Ep > 1
inverse relationship
change P decreases change in TR increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Rules for the Total Revenue Test : Unit Elastic

A

Ep=1
change P increases; TR– no effect
change P decreases; TR– no effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Rules for Total Revenue Test : Inelastic Demand

A

Ep < 1
direct relationship
change P increases ; change TR increase
change P decreases ; change TR decreases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Ep looks at?

A

movement along a stationery demand curve.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Cross Price Elasticity (CO)

A

measures responsiveness of the buyers to change in P of related goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Exy

A

x ; how quantity of x is related to price of y

y ; price of related goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Exy > 0

A

(+) substitute

larger the # is (+) the more indicates its a substitute

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Exy < 0

A

(-) compliment

the larger the # is (-) the more it indicates its a compliment good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Income Elasticity of Demand

A

Ei= % change Qd / % change Income

29
Q

Ei > 0

A

(+) normal good

2 types of normal goods

30
Q

Ei > 0 and Ei > 1

A

normal, luxury good
income elastic
buyer sensitive to change in income

31
Q

Ei < 0

A

(-) inferior good

32
Q

Ei > 0 and Ei < 1

A

(+) normal good ; necessity
income inelastic
buyer not quite sensitive to change in Income

33
Q

Ei = 0

A

unrelated good

34
Q

Demand Summary

3 measures of responsiveness

A
  1. price elasticity of demand (Ep)
  2. cross price elasticity (Exy)
  3. income elasticity (Ei)
35
Q

Supply Elasticity

A

how responsive supply/producer is to a given change in price.

36
Q

Es > 1

A

elastic supply
% change Qs > % change P
supply curve is flat

37
Q

Es < 1

A

Inelastic supply
% change Qs < % change P
supply curve is more steep/vertical

38
Q

Extreme Elasticities of Supply (3)

A
  1. perfectly inelastic supply
  2. perfectly elastic supply
  3. unit/unitary elastic supply
39
Q

Extreme Elasticity: perfectly inelastic supply

A

Es=0
perfectly vertical supply curve
change P increase/decrease; Qs–> no effect
no sensitivity to change in P

40
Q

Extreme Elasticity of Supply: perfectly elastic supply

A 
Es= infinite
extremely sensitive to any P change
increase in P - extremely large Qs
decrease in P - 0 Qs
perfectly horizontal supply curve
41
Q

Extreme Elasticity of Supply: Unit/Unitary Elastic

A

Es=1
% change Qs = % change P
45 degree angle to supply curve

42
Q

Determinate’s of Es

definition

A

factors that cause a supplier to be elastic or inelastic to a given price change.

43
Q

Determinate’s of Es (2)

A
  1. Time to adjust to P change

2. Availability of inputs used in production

44
Q

Determinate of Es : Time to adjust to change in P

A
  1. more time to adjust to change P more elastic supply; long-run
  2. less time to adjust to change P more inelastic supply: short-run
45
Q

determinate of Es : availability of inputs used in production

A

substituting one good for another

  1. more substitute inputs - more elastic supply
  2. less substitute inputs - more inelastic supply
46
Q

Consumer Choice

A

model of consumer decision making

47
Q

Utility Theory

A

one theory of consumer choice

48
Q

Utility Theory : Assumption

A

Goal of consumer is to maximize utility

49
Q

Utility definition (3 things)

A
  1. subjective measure of consumer satisfaction
  2. enjoyment, satisfaction, and pleasure a consumer receives from consuming; purchasing good/service
  3. no 2 people have the same utility
50
Q

Util definition (3)

A
  1. 1 unit of utility
  2. subjective measure of utility
  3. hypothetical
51
Q

Total Utility (TU)

A

the cumulative satisfaction from consuming all units of a good.

52
Q

Marginal Utility (MU)

A

the extra/additional satisfaction from consuming one additional unit of a good

53
Q

Utility Schedule (2 things)

A
  1. subjective measure of satisfaction
  2. depends on taste/preference for good.

Economic Decisions are made at the Margin

54
Q

(+) MU increasing

A

TU increasing at a fast rate

55
Q

(+) MU decreasing

A

TU still increasing

56
Q

MU=0

A

TU increasing at slow rate; maximized in theory

  • as more of good is consumed, eventually each additional unit is less and less satisfying
  • area of diminishing return
  • CAUTION: signal to buyer; you are approaching utility maximization.
57
Q

MU=0 and TU

A

TU Maximized = Consumer Choice

58
Q

MU = -1

A

(-) MU ; TU decreases

a rational consumer will NEVER consume the good.

59
Q

Summary of marginal Analysis (5)

A
  1. as you consume more of a good generally TU increases.
    Q increases TU increases
  2. as long as MU increases TU increases
  3. as you consume more of a good MU eventually declines approaching consumer choice. increase Q decrease MU
  4. when MU=0 TU is maximized ; consumer choice
  5. when MU (-) TU decreases; rational consumer will NOT consider.
60
Q

Consumer Optimization (CO)

A
  1. maximizes utility given the consumer’s limited income.
  2. they have a budget
  3. choice set of goods/service that maximizes consumer utility given the consumer’s income and prices of each good.
61
Q

CO rules for 2 good case (2)

A
  1. equate MU/P= MU per dollar for each good.

2. always select additional units of a good that has the highest MU/P until all income is spent; zero income

62
Q

2 effects on Consumer Optimum

A
  1. substitution effect of a P change

2. income effect of a P change

63
Q

2 effects on CO : substitution effect a price change

A

a change in P that causes the consumer to substitute cheaper goods for relatively more expensive goods

64
Q

effect on CO : income effect of a P change

A

a change in P that effects the purchasing power of the buyer’s money/income

Inflation ruins purchasing power

65
Q

Price (5)

A
  1. an objective measure of buyer’s preference of a good
  2. measures the value for additional units of a good consumed
  3. measures additional utility from consuming additional units of a good.
  4. better indicator of consumer performance than MU because P is objective
  5. best indicator of value
66
Q

MU

A
  1. a subjective measure of buyers preference for additional units of a good.
  2. closest measure in real world that you can get for MU is P
67
Q

MU=P

A

Q increases P decreases MU decreases

Q decreases P increases MU increases

68
Q

Consumer Surplus (CS)

A

a measure of Total Utility (TU)

69
Q

Consumer SP (2 things)

A
  1. The area below the demand curve above the price.

2. The difference between what a consumer is willing to pay and what they actually pay

70
Q

Consumer Surplus: The difference between what a consumer is willing to pay and what they actually pay.

A
  1. Water
    Large TU > MU small : large supply; small demand
  2. Diamonds
    Small TU < MU large : small supply; large demand

Econ: Elasticity and Consumer Choice (1 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions