modul 7 Flashcards
What is the price elasticity of demand?
The percentage change in quantity demanded divided by the percentage change in price
What are the determinants of price elasticity of demand?
The determinants of price elasticity of demand are the availability of substitutes, the necessity of the good, the proportion of income spent on the good, and the time period considered.
Insulin is an example of a good that has __ demand
perfectly inelastic
What is cross price elasticity of demand and what is its formula?
Cross price elasticity of demand measures the responsiveness of demand for one good to changes in the price of another good. The formula for cross price elasticity of demand is (% change in quantity demanded of good A / % change in price of good B).
What does a positive income elasticity of demand indicate?
An increase in income increases demand
A horizontal supply curve is perfectly ______; its price elasticity of supply is infinite.
elastic
What does price inelastic supply mean?
Quantity supplied is not responsive to price changes
What is a vertical supply curve called?
Perfectly inelastic supply curve
What is the relationship between cross price elasticity of demand and the responsiveness of demand to changes in the price of another good or service?
Positive relationship
What is income elasticity of demand?
The response of quantity demanded to changes in income
The relationship between total revenue and price elasticity of demand is that when demand is price elastic, a decrease in price will ______ total revenue.
increase
How does the arc elasticity formula differ from the standard method of computing percentage change?
It measures the percentage change in a variable relative to the average value
What does the arc elasticity method allow us to do?
Compute elasticity at the midpoint over a range of change
What is the price elasticity of demand?
The percentage change in quantity demanded divided by the percentage change in price
What is the formula for calculating price elasticity of demand using the arc elasticity method?
Percentage change in quantity demanded divided by percentage change in price
The price elasticity of demand is __ when a change in price leads to an equal percentage change in quantity demanded.
unit price elastic
How is the price elasticity of demand calculated?
The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
What is the formula for calculating price elasticity of demand?
Percentage change in quantity demanded divided by percentage change in price
How is the price elasticity of demand computed using the arc elasticity method?
The price elasticity of demand using the arc elasticity method is computed by dividing the percentage change in quantity demanded by the percentage change in price.
The concept of arc elasticity cannot be applied to ______ changes.
large
What does it mean when demand is price inelastic?
Quantity demanded is not responsive to a change in price
What are the determinants of price elasticity of demand?
The determinants of price elasticity of demand are the availability of substitutes, the necessity of the good, the proportion of income spent on the good, and the time period considered.
The determinants of price elasticity of demand include the availability of _ substitutes and the necessity of the good.
close
What is the relationship between total revenue and price elasticity of demand?
Total revenue is inversely related to price elasticity of demand
How does the value of price elasticity of demand change along a linear demand curve?
The value of price elasticity of demand changes along a linear demand curve because the slope of the curve varies. It is more elastic at higher prices and less elastic at lower prices.
What is the difference between elasticity and slope?
Elasticity measures the responsiveness of quantity demanded to changes in price, while slope measures the change in quantity demanded for a one-unit change in price.
What does it mean for demand to be price inelastic?
Demand is not affected by changes in price
What is the difference between perfectly inelastic demand and price inelastic demand?
Perfectly inelastic demand means that the change in quantity is zero for any percentage change in price, while price inelastic demand means only that the percentage change in quantity is less than the percentage change in price
If price and quantity demanded change by the same percentage, then total revenue __.
stays the same
What is the relationship between price changes and total revenue?
Price changes can either increase or decrease total revenue
How does a change in price affect total revenue?
The relationship between price changes and total revenue depends on the price elasticity of demand.
Can you provide an example of price elasticity of demand?
One example of price elasticity of demand is when the price of a luxury item increases and the quantity demanded decreases significantly.
Insulin is an example of a good that has __ demand
perfectly inelastic
Give an example of price elasticity of demand.
An example of price elasticity of demand is when a reduction in price leads to an increase in quantity demanded and total revenue.
How does a price change affect total revenue?
It depends on the initial price and the elasticity of demand
What is the concept of total revenue?
The relationship between price changes and total revenue
How does price changes affect total revenue?
The relationship between price changes and total revenue depends on the price elasticity of demand. If demand is elastic, a decrease in price will increase total revenue, while an increase in price will decrease total revenue. If demand is inelastic, a decrease in price will decrease total revenue, while an increase in price will increase total revenue. If demand is unit elastic, a change in price will not affect total revenue.
When the price of a good or service changes, the quantity demanded changes in the __ direction.
opposite
What is total revenue?
The price per unit times the number of units sold
What determines the price elasticity of demand?
The availability of substitutes
The amount of time buyers have to adjust to price changes
The importance of the good in household budgets
What determines whether demand is more or less price elastic?
The availability of substitutes
Time
The importance of the item in household budgets
Can you give an example of price elasticity of demand?
One example of price elasticity of demand is when the price of a luxury car increases and the quantity demanded decreases significantly. Another example is when the price of a generic brand of cereal decreases and the quantity demanded increases significantly.
What is the concept of price elasticity of demand?
The relationship between availability of substitutes and price elasticity of demand
What does a negative cross price elasticity of demand indicate?
Complements
How are goods classified as substitutes or complements based on their cross price elasticity of demand?
By their cross price elasticity of demand
What is cross price elasticity of demand and what is its formula?
Cross price elasticity of demand measures the responsiveness of demand for one good to changes in the price of another good. The formula for cross price elasticity of demand is (% change in quantity demanded of good A / % change in price of good B).
What does a positive income elasticity of demand indicate?
An increase in income increases demand
What does the income elasticity of demand measure?
Responsiveness of demand to changes in income
What is the formula for income elasticity of demand?
Percentage change in quantity demanded divided by percentage change in income
Cross price elasticity of demand measures the ______ of demand for a good or service to changes in the price of another good or service.
responsiveness
How do you calculate cross price elasticity of demand?
To calculate cross price elasticity of demand, divide the percentage change in quantity demanded of one good by the percentage change in price of another good.
The calculation of cross price elasticity of demand involves the percentage change in the quantity demanded of one good or service divided by the percentage change in ______
the price of a related good or service
How is the income elasticity of demand calculated?
By dividing the percentage change in quantity demanded by the percentage change in income
Normal goods have an income elasticity of demand ______ 0.
greater
How is income elasticity of demand calculated?
Percentage change in quantity demanded divided by percentage change in income
Which of the following goods is classified as normal based on its income elasticity of demand?
Luxury car
The calculation of income elasticity of demand involves ______
the change in the quantity demanded at a specific price
Give an example of a good with a negative income elasticity of demand.
Used clothing, beans, and urban public transit are examples of goods with a negative income elasticity of demand.
What is the formula for calculating income elasticity of demand?
(Change in Quantity Demanded)/(Change in Income)
How do you classify goods as substitutes or complements based on their cross price elasticity of demand?
Goods with positive cross price elasticity of demand are considered substitutes, while goods with negative cross price elasticity of demand are considered complements.
How do you calculate income elasticity of demand?
To calculate income elasticity of demand, divide the percentage change in quantity demanded by the percentage change in income.
What is the formula for cross price elasticity of demand?
Percentage change in quantity demanded of one good divided by percentage change in price of another good
What is the formula for calculating cross price elasticity of demand?
(Change in Quantity Demanded of Good A)/(Change in Price of Good B)
What are goods or services called if their income elasticity of demand is negative?
Inferior goods
What does the cross price elasticity of demand measure?
Responsiveness of demand to changes in another good’s price
Which of the following goods is classified as a substitute based on its cross price elasticity of demand?
Coffee and tea
What is the relationship between cross price elasticity of demand and the responsiveness of demand to changes in the price of another good or service?
Positive relationship
Based on their income elasticity of demand, how are goods classified as normal or inferior?
By their income elasticity of demand
The _ elasticity of demand reflects the responsiveness of demand to changes in income.
income
What is income elasticity of demand?
The response of quantity demanded to changes in income
What does a negative income elasticity of demand indicate?
An increase in income reduces demand
A horizontal supply curve is perfectly ______; its price elasticity of supply is infinite.
elastic
______ is the concept that measures the responsiveness of supply to changes in price.
Elasticity of supply
How is the elasticity of supply calculated?
The elasticity of supply is calculated by dividing the percentage change in quantity supplied by the percentage change in price.
How is elasticity of supply calculated?
By dividing the percentage change in quantity supplied by the percentage change in price
The larger the price elasticity of supply, the more ______ the firms that supply the good or service are to a price change.
responsive
What does price inelastic supply mean?
Quantity supplied is not responsive to price changes
What does it mean for supply to be unit price elastic?
Unit price elastic supply means that the percentage change in quantity supplied is equal to the percentage change in price.
What does price elastic supply mean?
Price elastic supply means that quantity supplied is more responsive to price changes.
What does it mean if the price elasticity of supply is infinite?
Perfectly price elastic supply
What does unit price elastic supply mean?
Unit price elastic supply means that the percentage change in quantity supplied is equal to the percentage change in price.
The calculation of elasticity of supply is determined by dividing the percentage change in ______ by the percentage change in quantity supplied.
price
What is a vertical supply curve called?
Perfectly inelastic supply curve
What does it mean if the price elasticity of supply is less than 1?
Price inelastic supply
How is the price elasticity of supply calculated?
Percentage change in quantity supplied divided by percentage change in price
What does it mean for supply to be price inelastic?
A small change in price leads to a relatively large change in quantity supplied
What does perfectly price elastic supply mean?
Quantity supplied is perfectly responsive to price changes
The more responsive the supply of apartments is to changes in price (rent in this case), the less rents rise when the demand for apartments ______.
increases
What is the concept of elasticity of supply?
The responsiveness of supply to price changes
What does the price elasticity of supply measure?
The responsiveness of quantity supplied to a change in price
Why is time an important determinant of price elasticity of supply?
Because supply is more elastic in the long run than in the short run
Why is the price elasticity of supply greater when the length of time under consideration is longer?
Producers have more options for adjusting to the change in price
What does it mean for supply to be price elastic?
Price elastic supply means that the quantity supplied is highly responsive to changes in price.
