Module 5 - Elasticity Flashcards
___ is a measure of how responsive one variable is to a change in another variable.
Elasticity
What is elasticity’s role in economics?
It can be used to measure a variety of different questions because it has no unit of measure - just a number
___ is a measure of how responsive quantity demanded is to a chance in price; %ΔQd divided by %ΔP.
Price elasticity of demand (Ed)
The price elasticity of demand is always ___ due to ___.
Negative
Law of Demand
The ___ is a principle that states: as the price of a good, service or resource rises, the quantity demanded will fall, and vice versa (if all else remains constant).
Law of Demand
If P increases then Qd ___.
Decreases
If Qd increases then P ___.
Decreases
___ is when the middle values are focused on in a specific range of prices and quantity; ΔP divided by 2.
Midpoint
___ is price elasticity of demand greater than 1 in absolute value; consumers are more sensitive to changes in P; | Ed | > 1
Elastic demand
Wide linear demand curve
___ is price elasticity of demand less than 1 in absolute value; consumers are less sensitive to changes in P; | Ed | < 1
Inelastic demand
Steep linear demand curve
___ is price elasticity of demand equal to 1 in absolute value; P and Qd are equal; | Ed | = 1
Unit elastic demand
___ is an infinite price elasticity of demand where Qd is responsive to a change in P, Qd decreases to zero; | Ed | = ∞
Perfectly elastic demand
Horizontal linear demand curve
___ is when price elasticity of demand equal zero; Qd is non responsive to change in P; changes in price leave Qd unchanged; | Ed | = zero
Perfectly inelastic demand
Vertical linear demand curve
Which demand curve is elastic and inelastic?
A - inelastic
B - elastic
Which demand curve is perfectly elastic and perfectly inelastic?
C - perfectly elastic
D - perfectly inelastic
If demand is elastic, ↓P will ___ TR.
↑TR
If demand is inelastic ↑P will ___ TR.
↑TR
If demand is elastic, ↑P will ___ TR.
↓TR
If demand is inelastic, ↓P will ___ TR.
↓TR
Which is more elastic?
A. Frozen pizza, frozen food, all food
B. Candy bars vs Cars
C. Coffee vs Iceberg Lettuce
A. Frozen pizza - all other food frozen food is a substitute
B. Candy bars - a 50% increase in a car vs a candy bar (candy bar is relatively small compared to income)
C. Iceberg lettuce - more substitutes for iceberg lettuce (bib lettuce, spinach, arugula, romaine lettuce, green veggies, etc) than coffee (tea, water, soft drinks, etc)
Demand tends to be more ___ when more substitutions are available.
Elastic
Demand tends to be more ___ when less substitutions are available.
Inelastic
Demands tends to be more ___ when the P of a good or service is larger than proportion of income.
Elastic
Demands tends to be more ___ when the P of a good or service is less than proportion of income.
Inelastic
Demands tends to be more ___ when over time.
Elastic
Inelastic: Necessity
Elastic: Luxury
What is a good or service that is inelastic? What is a good or service that is elastic?
Inelastic: Medical care, deodorant (Ed > 1)
Elastic: Vacation, perfume (Ed < 1)
What are the determinants of elasticity?
- ___
- ___
- ___
- Necessities
- Luxuries
- Time
___ is a measure of the effect of a change in the price of one product on the quantity demanded of another; %ΔQdb divided by %ΔPa; Eb/a.
Cross-price elasticity of demand (Eb/a)
Positive & Negative
Cross-price elasticity of demand is always ___ for substitutes.
Positive
Always selling one or the other (+)
Cross-price elasticity of demand is always ___ for complements.
Negative
Neither is being sold (-)
___ is a measure of how responsive demand is to a change in consumer income; %ΔQd divided by %ΔPincome; Ei.
Income elasticity of demand (Ei)
Inferior goods have a ___ income elasticity of demand (Ei).
Negative (Ei)
Normal goods have a ___ income elasticity of demand (Ei).
Positive (Ei)
___ is a measure of how responsive quantity supplied is to price changes; %ΔQs divided by %ΔP; Es.
Price elasticity of supply (Es)
Price elasticity of supply is always ___ due to ___.
Positive due to the Law of Supply
___ is a principle that states: as the price of a G, S, or R rises, the quantity supplied will increase and vice versa (if all else remains constant).
Law of Supply
___ is price elasticity of supply greater than 1; consumers are more sensitive to changes in P; Es > 1
Elastic supply
Wide linear supply curve
___ is price elasticity of supply less than 1; consumers are less sensitive to changes in P; Es < 1
Inelastic supply
Steep linear supply curve
___ is price elasticity of supply equal to 1; P and Qs are equal; Es = 1
Unit-elastic supply
___ is an infinite price elasticity of supply where Qs is responsive to a change in P, Qs decreases to zero; Es = ∞
Perfectly elastic supply
Horizontal linear supply curve
___ is when price elasticity of supply equals zero; Qs is non responsive to change in P; changes in price leave Qs unchanged; Es = zero
Perfectly inelastic supply
Vertical linear supply curve
Which supply curve is elastic and inelastic?
C - inelastic
D - elastic
Which supply curve is perfectly elastic and perfectly inelastic?
A - perfectly inelastic
B - perfectly elastic
___ is the time period in which producers cannot increase their economic resources to increase Qs.
Immediate period
___ is the time period in which at least one input of production is fixed, but other inputs can be changed.
Short run
___ is the time period in which all inputs of production can be changed.
Long run
When consumers have less time to adjust to changes, demand becomes ___.
More inelastic
The greater the change in price, the ___ reliable the elasticity estimate is going to be.
Less
The ___ of a demand curve is the change in price divided by a change in Qd.
Slope
What is Eb/a signifying?
For every 1% increase in a substitute or complement () there is an increase or decrease in ()
For most goods, the longer the time frame, the more ___ the elasticity of a good.
Elastic
Long-run more elastic than short-run
