Lecture 7 Flashcards

1
Q

Formula for income elasticity of demand

A

%change in Q/ % change in Income

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2
Q

describe income elasticity of demand

A

The income elasticity of demand measures how the
quantity demanded of a good responds to a change in income, other things remaining the same.

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3
Q

describe “income elastic”

A

This means the income elasticity of demand is greater than 1, demand is income elastic and the good is “normal”

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4
Q

Describe “income inelastic”

A

This means the income elasticity of demand is greater than zero but less than one, demand is inelastic, and good is “normal.”

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5
Q

Describe “negative”

A

Income elasticity is less than zero and the good is “inferior”

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6
Q

Describe cross elasticity of demand

A

The measures of the responsiveness of demand for a good to change in the price of a substitute or a complement good.

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7
Q

formula for cross elasticity of demand

A

%change in Q/ %change in P (other good)

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8
Q

The cross elasticity of demand between two substitutes is…

A

positive (skis &snowboard)

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9
Q

The cross elasticity of demand between complements is…

A

Negative (Coffee & Cream)

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10
Q

describe price elasticity of supply

A

The elasticity of supply measures the responsiveness of the quantity supplied
to a change in the price of a good when all other influences on selling plans
remain the same.

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11
Q

Formula to calculate the elasticity of supply

A

%change in Q supplied/ %change in price

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12
Q

Elasticity of supply is “perfectly elastic” when…

A

Magnitude is infinity, the smallest possible increase in price causes a huge increase in quantity supplied./

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13
Q

Elasticity of supply is “elastic” when…

A

Magnitude is less than infinity but greater than 1; the percent increase in quantity supplied exceeds the percent increase in the price.

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14
Q

Elasticity of supply is “ unit elastic” when…

A

Magnitude is one, the percent increase in quantity supplied equals the percent increase in price

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15
Q

Elasticity of supply is “inelastic” when…

A

Magnitude is greater than zero but less than one, the percent increase in quantity supplied is less than the percent increase in the price

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16
Q

The elasticity of supply is “ perfectly inelastic” when…

A

magnitude is zero, the quantity supplied is the same at all prices.

17
Q

Factors that influence elasticity of supply

A

-resource substitution possibilities (how available resources are)
-time frame for supply decision ( takes time to respond to changes)

18
Q

describe resource sub. possibilities

A

The easier it is to substitute among the resources used to produce a good or
service, the greater is its elasticity of supply.

19
Q

Describe time frame for supply decision

A

The more time that passes after a price change, the greater is the elasticity of
supply.
 Short-run supply is somewhat elastic.
 Long-run supply is the most elastic.

20
Q
A