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ECON 201 > Review 3 Elasticity > Flashcards

Review 3 Elasticity Flashcards

1
Q

Price elasticity of demand

A

the percentage change in the quantity of a product demanded divided by the percentage change in the price that caused the change in quantity. The price elasticity of demand indicates how responsive consumers are to changes in a product’s price.

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2
Q

When the price of widgets was $10, buyers bought 550 widgets. When the price increased to $14, widget sales dropped to 450 widgets. Calculate the price elasticity of demand in this situation.

A

[(Q0-Q1)(P0+p1)]/[(Q0+Q1)(P0-P1)]
[(550-450)(10+14)]/[(550+450)(10-14)]
0.6

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3
Q

Meaning of “demand is elastic”

A

change in price changes the quantity demanded

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4
Q

Meaning of “demand is inelastic”

A

changes in price does not change quantity demanded

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5
Q

Meaning of “demand is perfectly inelastic”

A

despite an increase in a product’s price, consumers still purchase the same amount of it

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6
Q

Meaning of “demand is unit elastic”

A

the percentage change in quantity demanded of a product is equal to the percentage change in its price. A curve with a decreasing slope results. Sales revenue (price x quantity sold) is constant.

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7
Q

The slope of a demand curve that is more elastic with have a _________________ slope.

A

smaller/flatter/less steep

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8
Q

Price elasticity of supply

A

the percentage change in the quantity of a product supplied divided by the percentage change in the price that caused the change in quantity supplied. The price elasticity of supply indicates how responsive sellers are to changes in a product’s price.

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9
Q

When the price of widgets was $11, sellers were willing to sell 500 widgets. When the price increased to $13, widget sellers were willing to sell 700 widgets. Calculate the price elasticity of supply in this situation.

A

[(500-700)(11+13)]/[(500+700)(11-13)]=
2

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10
Q

What factors determine a product’s price elasticity of demand?

A

availability of good substitutes (competition)
share of the typical consumer’s total budget expended on a product
if the product is considered a luxury or a necessity
time buyers have to adjust to the price change

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11
Q

Assume that Exxon increased the price of its gasoline 10% and that consequently its gasoline sales dropped 5%. Calculate the price elasticity of demand in this situation.

A

5/10=0.5

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12
Q

If the price elasticity of demand is less than 1, the demand is

A

inelastic

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13
Q

If the price elasticity of demand is greater than 1, the demand is

A

elastic

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14
Q

If the price elasticity of demand is 1, the demand is

A

unitary

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15
Q

If the price elasticity of demand is less than 1, increasing the price of the product will ___________ the total revenue of the company.

A

increase

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16
Q

If the price elasticity of demand is greater than 1, increasing the price of the product will ___________ the total revenue of the company.

A

decrease

17
Q

If the price elasticity of demand is 1, increasing the price of the product will ___________ the total revenue of the company.

A

not affect

18
Q

Assume that Amaco increased the price of its gasoline from $1.00 to $1.20, and therefore the amount of Amaco’s gasoline sales decreased from 1000 gallons to 700 gallons. Calculate the price elasticity of demand for Amaco’s gasoline in this situation.

A

[(1000-700)(1+1.2)]/[(1000+700)(1-1.2)]=
33/17

19
Q

If the price elasticity of demand is less than 1, decreasing the price of the product will ___________ the total revenue of the company.

A

decrease

20
Q

If the price elasticity of demand is greater than 1, decreasing the price of the product will ___________ the total revenue of the company.

A

increase

21
Q

Is the demand for a good more elastic if the good is a small part of the buyer’s budget or if it is a large part of the buyer’s budget?

A

large part

22
Q

Is the demand for a good more elastic if buyers have a short period of time to adjust to price changes or if buyers have a longer period of time to adjust to price changes?

A

longer time

23
Q

Is the demand for WalMart’s products more elastic if WalMart has a lot of competition or if WalMart has less competition?

A

more competition

24
Q

If the demand for a product is elastic, will an increase in supply have a relatively large or small effect on the price of the product?

A

small effect

25
Q

If the demand for a product is elastic, will an increase in supply have a relatively large or small effect on the quantity of sales?

A

large effect

26
Q

If the demand for a product is inelastic, will an increase in supply have a relatively large or small effect on the price of the product?

A

large effect

27
Q

If the demand for a product is elastic, will an increase in supply have a relatively large or small effect on the quantity of sales?

A

large effect

28
Q

Short run (in production)

A

A time period so short that a firm is unable to vary some of its factors of production. The firm’s plant size typically cannot be altered in the short run.

29
Q

Long run (in production)

A

A time period long enough to allow the firm to vary all of its factors of production.

30
Q

Does the supply of a good tend to be more elastic in the short run or long run?

A

long run

31
Q

If the supply for a product is elastic, will an increase in demand have a relatively large or small effect on the price of the product?

A

small effect

32
Q

If the supply for a product is elastic, will an increase in demand have a relatively large or small effect on the quantity of sales?

A

large effect

33
Q

If the supply for a product is inelastic, will an increase in demand have a relatively large or small effect on the price of the product?

A

large effect

34
Q

If the supply for a product is inelastic, will an increase in demand have a relatively large or small effect on the quantity of sales?

A

small effect

ECON 201 (8 decks)

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