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Microeconomics > Elasticity > Flashcards

Elasticity Flashcards

1
Q

Elasticity

A

Measures how sensitive Q demanded is to a change in price

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2
Q

Inelastic Demand (not-sensitive)

A

When price rises, the quantity demanded barely changes

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3
Q

Why is inelastic demand insensitive?

A

Products with inelastic demand have few substitutes and are necessities

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4
Q

Elasticity Demand Coefficient

A

% change Q / % change P

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5
Q

Inelastic Demand Coefficient

A

n < - 1

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6
Q

Elastic Demand (sensitive)

A

When price rises, quantity demanded changes by a lot

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7
Q

Why is elastic demand sensitive?

A

Products with elastic demand have many substitutes and are luxuries

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8
Q

Elastic Demand Coefficient

A

n > -1

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9
Q

Perfectly Inelastic

A

Change in price has no effect on quantity; n =0; Chemo, medication, insulin

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10
Q

Perfectly Elastic

A

Producers can’t change price because on one will buy the product

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11
Q

What is the problem with just looking at the slope to determine elasticity?

A

The unit problem; All depends on starting point and units of measure

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12
Q

Inelastic Demand: When price rises (falls)

A

Revenue rises (falls); P and TR move in same direction

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13
Q

Elastic Demand: When price rises (falls)

A

Revenue falls (rises); P and TR move in different directions

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14
Q

Determinants of Elasticity

A

Substitues; Passage of Time; Definition of Market; Significance in budget

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15
Q

Availability of Substitutes

A

When something is available, it is elastic because it is easy to replace

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16
Q

Passage of Time

A

Finding fuel in the winter vs. summer

17
Q

Market

A

Easy to give up brand of cigarette compared to giving up cigarettes entirely

18
Q

Significance in Budget

A

When gum becomes more expensive we barely notice

19
Q

More narrow market is more sensitive because

A

There are more substitutes

20
Q

Cross-Price Elasticity (Cars and Floor Mats)

A

Shows how sensitive the quantity in one product is to the change in price of another; Substitutes or complements

21
Q

A positive cross-price elasticity means that the products are

A

Substitutes

22
Q

A negative cross-price elasticity means that the products are

A

Complements

23
Q

Income Elasticity (Apple and iPads)

A

Shows how sensitive the quantity of a product is to change in income

24
Q

A positive income elasticity means that the product is

A

Normal Good; Income goes up, people buy more

25
Q

A negative income elasticity means that the product is

A

Inferior Good

26
Q

Point Elasticity

A

Making points measures close together; Problem = not realistic

27
Q

Arc Elasticity

A

Takes average/midpoint; Problem = Don’t use average in real world

Microeconomics (8 decks)

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