Elasticity Flashcards
The definition of the market- for the good itself, the way we define the good. The broader the definition of the market, the _______________ it will be
more inelastic
Determinants for price elasticity of supply: Flexibility of production: The easier to produce a product is, the ________ the supply will be.
less elastic
Impact on budget- The less impact on our budget, the__________ the demand for that good will be.
less elastic
If the value of income elasticity is positive but less than 1 the good is
Normal and a necessity
When demand is elastic, a fall in price causes total revenue to rise because
the increase in quantity sold is large enough to offset the lower price.
Total revenue is calculated by
Price charged X Quantity Purchased
Demand is unit price elastic if the price elasticity of demand is
exactly equal to 1. That is, the change in price equals the change in quantity demanded.
The Time Horizon- the time consumers have to react to an increase or decrease in prices. The less time consumers have to react to a change in price the ________ demand will be.
Less elastic
If the value of the income elasticity is postive but greater than 1 than the good is
Then the good is Normal and a Luxury
If income elasticity is postive that means the good is a
Normal Good
Demand is price inelastic if its price elasticity of demand is ___________________
smaller than 1.
Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil? The elasticity coefficient is likely to be __________ and supply is _____________.
The elasticity coefficient is likely to be low and supply is highly inelastic.
If a supply curve is a horizontal line, supply is said to be
perfectly elastic.
The price elasticity of an upward-sloping supply curve is always
Positive
Elasticity is a measure of
A measure of how much one economic variable responds to changes in another economic variable.
Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton’s income elasticity of demand for potatoes is ___________________, so Sefton considers potatoes to be an inferior good.
negative
Determinants for price elasticity of supply:
- Flexibility of production
- Time horizon
Price elasticity of supply
The responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product’s price.
If income elasticity is negative that means the good is a
Inferior Good
Elasticity is / is not constant along a linear demand curve
Elasticity is not constant along a linear demand curve
Availability of substitutes - the more substitutes we have, the ________________ demand is going to be.
more elastic
The larger the share of a good in a consumer’s budget, holding everything else constant, the ______________ is a consumer’s demand.
the more price elastic is a consumer’s demand.
Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.
Elasticity
Price elasticity of demand Formula
percentage change in quantity/percentage change in price
If a firm wanted to know whether the demand for its product was elastic, unit-elastic, or inelastic, then the firm could
change price a little bit and observe what happens to total revenue.
If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that
the two brands of detergent are close substitutes.
The demand for gasoline in the short run is ________ because there are ________________ for gasoline.
nelastic because there are no good substitutes for gasoline.
If the cross price elasticity is 0 than 2 products are
unrelated
Income elasticity measures how a good’s quantity demanded responds to change in ________________.
buyers’ incomes.
What is this formula?
Income elasticity
demand is price elastic if its price elasticity of demand is _________________.
Larger than 1.
Cross-price elasticity of demand is the :
% change in Qd of one good/ % change in Qp of another
True or false You can calculate the price elasticity of demand by looking at the slop of the demand curve.
False We use the midpoint formula
Income Elasticity -
Percentage change in the quantity demanded of a certain good due to a percentage change in income.
What does this formula measure
Cross Price Elasticity
What could explain why the demand for table salt is inelastic?
Households devote a very small portion of their income to salt purchases.
When there few close substitutes available for a good, demand tends to be
relatively inelastic.
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are
complements.
Price Elasticity of Demand is equal to
Percentage in Qd/ Percentage change in Qp
If the market for a product is broadly defined, then there are ______________________ for the product and the demand for the product is relatively _________________.
few substitutes for the product and the demand for the product is relatively inelastic
Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peet’s Coffee.
Peet’s Coffee, coffee, hot beverages
What are the Determiners of elasticity:
- Necessity VS Luxury
- Availability of substitutes
- The Time Horizon
- Impact on budget
- The definition of the market
This graph is likly showing
Unit Elastic- a change in price results in an equal change in demand
This graph is likey showing an ____________ demand.
Elastic- Change in quantity demanded is larger than the change in price. If price changes a small amount, there is a larger amount of quantity demanded.
If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?
Price Falls
Which of the following goods would have the most inelastic demand?
- ski vacations
- luxury cars
- bread
- big screen TVs
Bread
The midpoint formula is used to measure the elasticity of demand between two points on a demand curve to ensure that we have only _____________ of the price elasticity of demand between two points on a demand curve.
one value
Price elasticity of demand measures
how responsive quantity demanded is to a change in price.
Price elasticity of demand
The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price.
Determinants for price elasticity of supply - Time horizon- The longer a seller has to respond to a change in price the _______________ the supply curve will be.
less elastic
Necessity VS Luxury
The more necessary something is, the _________ demand will be
less elastic
Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. What prediction can we make?
The more elastic the supply curve, the __________ the price decrease.
The more elastic the supply curve, the smaller the price decrease.
As price falls from PA to PB, the quantity demanded increases most along D1; therefore, D1 is ___________ than D2 or D3
more elastic
If the cross Price Elasticity is positive that means the two goods are
Substitutes
The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.
less elastic than
Since price and quantity change in opposite directions on the demand curve, the price elasticity of demand is a _____________.
negative number.
Price elasticity of supply is used to gauge
how responsive suppliers are to price changes.
elasticity is a measure of how much one economic variable response to changes in another economic variable, based on_______________________.
percentage changes in the variables.
This graph shows what kind of demand.
InElastic - Change in Qd is smaller than change in price. If prices change drastically quantity demanded will not change as much.
Cross-price elasticity of demand is calculated as the
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
If the value of income elasticity is negative then the good is
Inferior
What is true about the price elasticity of demand along a downward sloping linear demand curve?
It is __________ at high prices and ___________ at low prices.
It is elastic at high prices and inelastic at low prices.
If price elasticity of demand greater than 1 (in absolute terms) then quantity demanded goes up by a higher percentage than price, raising the ________.
revenue.
Total revenue equals
price per unit times quantity sold.
If two demand curves go through the same point, the one with the higher slope also has the
higher (more negative) elasticity.
Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long run price elasticity of supply for oil? The elasticity coefficient is likely to be __________ in the long run than in the short run.
The elasticity coefficient is likely to be higher in the long run than in the short run.
If the cross Price Elasticity is negative that means the two goods are
Compliments
