Elasticity

Question 1

what is price elasticity of demand

Answer 1

its the measure of responsiveness in quantity demanded

Question 2

price elastic of demand formula

Answer 2

%change in quantity demanded/ % change in price

Question 3

what happens when the price of a product rises all other things equal

Answer 3

price and demand are inversely related so when price raises demand will fall

Question 4

midpoint method

Answer 4

it calculates the percentage change

the formula is too big to write in here

Question 5

what is elastic

Answer 5

if ep is greater than 1 then it is elastic so when the price changes it will causes a big change in demand. the slop of elastic is less steep

Question 6

what is unitary

Answer 6

if ep is equal to 1 when the price changes the demand will not change too much

Question 7

what is inelastic

Answer 7

if ep is less than 1 when the price changes it will cause a small change in demand. the slope for inelastic is steep

Question 8

determinate of price elasticity

Answer 8

if there are available subitiutes
if the good is a necessity or a luxury
time
percentage of income spent on the good

Question 9

perfectly inelastic demand

Answer 9

when the quantity does not respond to change in price so regardless of how much they sell the good for the consumers will buy the same amount. the graph is completely vertical at that quantity

Question 10

perfectly elastic demand

Answer 10

this is when the consumers will buy any number of a good but if the price goes up they will buy none.
the graph is horizontal at that limit price

Question 11

how is elasticity useful to businesses

Answer 11

it allows us to understand the relationship between quantity deamded and price and allows for us to make predictions on what will happen if we change the price

Question 12

what are the two things that will change when a seller raises or lowers a price

Answer 12

the number of goods sold will change and the revenue/profit per good will change

Question 13

cross price elasticity

Answer 13

formula : %change in quantity (x) demanded / % change in price of (y)

use the midpoint method to calculate the change in percentage

Question 14

income elasticity of demand

Answer 14

the percentage change in quantity of goods demanded when the income of the consumer changes

% change in quantity demanded / % change in income

Question 15

price elasticity of supply

Answer 15

the change in amount of Goods supplied when the price of the goods changes
% change in quantity supplied / % change in price

Question 16

what does it mean if the supply curve is flat

Answer 16

the flatter the curve the greater effect a change in price will have on the quantity supplied

Question 17

what does it mean when the supply curve is steep

Answer 17

when the supply curve is steep this means a change in price doesn’t effect the quantity supplied that much

Question 18

tax incidence

Answer 18

its the measure of who bares the burden of and increase of tax or who benifts the most from a tax reduction

Question 19

tax incidence relation with elasticity

Answer 19

if supply is inelastic the excise tax falls on producers
if demand is inelastic the excise tax falls on consumers
elasticity isn’t who pays the tax but instead it is incidence of excise tax

Question 20

what is negative cross price elasticity

Answer 20

its when two goods that are complements of each other and one of their prices goes up so the other goods demand falls