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BYU - Man Ec > Man Ec: #3 > Flashcards

Man Ec: #3 Flashcards

1
Q

What is elasticity?

A

the measure of responsiveness of one variable to changes in another.

In other words it measures sensitivity.

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2
Q

If there is a weak/small percentage change in quantity to a change in price it is put in the category of _______ demand.

A

inelastic demand

50

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3
Q

If a change in price causes a large change in quantity it is said that there is ________ demand.

A

elastic demand

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4
Q

What does it mean in regards to price when something is said to be inelastic?

A

It means that changes in the price will most likely not change the quantity demanded.

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5
Q

If there is inelastic demand then will the numerator be big or small? The denominator? What will Ep be?

A

Numerator: small (quantity will have a small percent change to price)

Denominator: big (price can change without changing quantity much)

Ep: likely between 0 and 1

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6
Q

If there is elastic demand then will the numerator be big or small? The denominator? What will Ep be?

A

Numerator: big (quantity will have a big percent change to price)

Denominator: big (price can change without changing quantity much)

Ep: likely between 0 and 1

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7
Q

What is the equation for elasticity. (two options)

A

Price Elasticity of Demand =
% Change in Quantity Demanded
/ % Change in Price

or

Ep= [(change in Quantity demanded)/(Change in Price)] *[Price/Quantity]

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8
Q

What is it called when the percentage change in price equals the percentage change in quantity?

A

unitary elasticity of demand.

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9
Q

Does elasticity rise or fall as you move DOWN a demand curve?

A

it falls from elastic to inelastic with a point of unitary elasticity in the middle

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10
Q

If a demand curve is called perfectly elastic what does that mean, and how would this look like on a graph?

A

This means that the elasticity is infinity and that the graph would show a horizontal line

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11
Q

If a demand curve is called perfectly inelastic what does that mean, and how would this look on a graph?

A

This means that the elasticity is zero and that the graph would show a vertical line

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12
Q

There are two ways to measure elasticity. What are they?

A

Point elasticity

Arc Elasticity

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13
Q

How does the “point elasticity” method of measuring elasticity work?

A

It measures elasticity at a given POINT

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14
Q

How does the “arc elasticity” method of measuring elasticity work?

A

It measures elasticity for a given RANGE

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15
Q

What is the arc elasticity formula?

A

= (Change in Q/ average Q) / (Change in P/ average P)

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16
Q

There are different situations in which you use the point elasticity formula versus the arc elasticity formula. One if for when the change is small the other for when it is big. Which is which?

A

point: small
arc: big

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17
Q

What is the most important factor in determining elasticity?

A

The availability of substitutes

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18
Q

What happens to elasticity of demand as there are more and more substitutes?

A

Demand becomes more elastic

19
Q

Another area of substitutes is general versus specific measures such as measuring the demand elasticity of meat as apposed to chicken. Which is more inelastic?

A

The demand elasticity for meat would be more inelastic than for chicken.

20
Q

Elasticity is also effected by the amount of their budget a consumer spends on an item. If the item takes a small percentage such as salt would it be elastic or inelastic?

A

It would be more inelastic

21
Q

How do you find total revenue (TR) using price and quantity?

A

TR= price * quantity

you are finding the area of the box.

22
Q

If there is a change in quantity one direction there will be a change in price in the _________ direction.

A

other. They are inversely related

23
Q

If something is elastic then is % change in Q or P bigger?

A

The change in Q would be bigger

24
Q

Another way to measure the elasticity of demand is through income. Generally if there is a higher income then there is a higher demand for items. How would the “income elasticity of demand” be measured with an equation?

A

Income Elasticity= (% change Quantity) / (% Change Income)

25
Q

For elasticity of demand what do the following imply as to which is greater between %changeQ and %changeP:

1) Elastic Demand
2) Unitary Elasticity
3) Inelastic Demand

A

1) % changeQ > %changeP
2) % changeQ = %changeP
3) % changeQ < %changeP

26
Q

For the following cases describe when a price increase would decrease, increase, or leave unchanged total revenue.

1) Elastic Demand
2) Unitary Elasticity
3) Inelastic Demand

A

A price increase would

1) decrease
2) unchanged
3) increase

27
Q

Do income and quantity usually move in the same or opposite directions?

A

They usually move in the same direction.

28
Q

Because income and quantity usually move in the same direction elasticity of income is usually greater than zero. However it can be a negative number less than zero. What are the goods called that are above zero and what are the ones called that are below zero?

A

Above: normal goods (automobiles, jewelry, housing)
Below: inferior (generic potato chips, public trans., etc)

29
Q

cross-price elasticity of demand refers to…

A

the percentage increase in the price of another good or service resulting from a percent increase in the price of another good or service.

30
Q

the cross-price elasticity formula for the demand for butter with respect to the price of margarine would be written as…

A

E(b,m)= (% change Q Butter) / (%Change in P Margarine)

31
Q

What is consumer surplus?

A

This is the difference between the amount a consumer was willing to pay for a good versus how much they actually paid for the good. The area between the demand curve and the market price.

32
Q

What is producer surplus?

A

This is the area between the supply curve and below the market price.

33
Q

What is the main force operating on exchange in the economy?

A

competition

34
Q

When competition is perfect what is required of the government?

A

Nothing, they don’t have to intervene

35
Q

What is one of the most useful features of elasticity?

A

The ability to predict the effect of price changes on total revenue.

36
Q

Persephone’s quality ping pong balls were moving slowly in February, but she found the secret of boosting sales when she lowered the price from above the dollar barrier (at $1.05) to just below it (at $.95). Sales jumped from 9,000 units to a more acceptable 11,000 units. Calculate the elasticity of the ping pong balls.

A

2

= (2,000/10,000)/(-.10/1.00) = .20/(-.10) = -2

37
Q

Yemayhem yoyos became exceedingly popular after the $2.00 price fell by a dime. At least, sales rose from 110 to 118 units. What was the price elasticity of the yoyos?

A

1.37

The yoyo price falls from $2.00 to $1.90. Sales rise from 110 to 118. = (8/114)/(-.10/1.95) = -1.37. Q and P are averages.

38
Q

The demand schedule for wax candles is as shown below. Calculate the price elasticity of demand between $3 and $4. Assume the manager has been charging $3.00. Determine whether he should keep that price or change the price to $4.00. If you choose to change, you must demonstrate the businessman’s unfailing proof that the change is appropriate.

Px	         Qx
$5.00	600
4.00	        700
3.00	        800
2.00	       900
1.00	       1,000

The elasticity of demand between $3 and $4 is

  • 1.33
  • .466
  • 2.143
A

.466

39
Q

The ARC elasticity formula measures

the distance between two corresponding supply curves

sensitivity to changes in price over some range of the demand curve

the difference between the supply and demand functions

A

b

40
Q

For the elasticity you found, if the manager wants higher total revenues he must increase the price to $4.00.

true
false
A

ture

41
Q

The elasticity you found for problem 1 is “elastic.”

true
false
A

false

42
Q

The price elasticity of demand for apples is 3.0. If apple sellers increase the market price of apples, they can expect

increased total revenues

unchanged total revenues

decreased total revenues

possibly some change in total revenues, but we don’t have enough information to predict

A

c

Elasticity of demand is not related to supply curves or how supply curves relate to demand.

43
Q

When the price of Seedy’s CDs dropped from $10 to a mere $8, sales increased by a healthy 12%. What was the elasticity of demand here?

  • 1.00
  • .60
  • .48
  • .545
A

.545

You used $8.00 as your price in the elasticity formula. You should use the average price, $9.00.

BYU - Man Ec (16 decks)

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