[ECON] Micro Test #2 Flashcards
what is the equation for price elasticity of demand?
% change in quantity demanded
% change in price
what is price elasticity of demand?
how sensitive quantity demanded is to a change in price
what are the determinants of price elasticity of demand?
substitutes: the more substitutes, the more elastic
timeframe: the more timeframe to adjust to a price change, the more elastic
income share: the more expensive compared to income, the more elastic
luxury/necessity: luxuries are elastic and vice versa
narrowness of market: the smaller of range of goods, the more elastic (similar to substitutes)
what does an elasticity of 0 mean?
perfect inelastic
what does an elasticity less than 1 mean?
relatively inelastic
what does an elasticity of one mean?
unit elastic
what does an elasticity greater than 1 mean?
relatively elastic
what elasticity means perfect elastic?
infinity
what elasticity means relatively inelastic?
less than 1
what does inelasticity mean?
the product is not sensitive to a change in price
are products inelastic or elastic in the short run?
inelastic
are products elastic or inelastic in the long run?
elastic
is inelastic demand flat or steep?
steeper
is elastic demand flat or steep?
flatter
what is price elasticity of supply?
how sensitive the quantity supplied is to a change in price
what is the equation for price elasticity of supply?
% change in quantity supplied
% change in price
t/f: do not use absolute values for PED
false; use absolute values
t/f: use absolute values for PES
true
what is cross-price elasticity of demand?
how sensitive the quantity of demand for one product is to a change in price of another product
what is the formula for XED?
% change in quantity demanded of product a
% change in price of product b
what does a negative XED mean?
the products are complements (hot dogs and hot dog buns)
what does a positive XED mean?
the products are substitutes (coke and sprite)
what is income elasticity of demand?
how sensitive the quantity demanded is to a change in income
what is the equation for income elasticity of demand?
% change in quantity demanded
% change in income
what does a negative YED mean?
inferior good (income and demand are inverse; example is ramen)
what does a positive YED mean?
normal good (income and demand are direct; example is clothing)
if the total revenue increases, the product is:
elastic
if the total revenue decreases, the product is:
inelastic
what is the equation for the total revenue test?
price X quantity sold
