Week 3 - Elasticity & Its Application Flashcards
what does Elasticity measure?
measures how much buyers and sellers respond to changes in the market conditions.
When is demand for a good elastic?
If the quantity demanded responds substantially to changes in price.
When is demand for a good inelastic?
if the quantity demanded doesn’t respond substantially to changes in price.
What does the Price of Elasticity of Demand measure?
measures how much the quantity demanded responds to a change in price.
Does demand tend to be more elastic over longer periods? Give examples?
Yes. For example, a raise in the price of petrol may only make demand fall slightly, while in the long run, people will move to more fuel-efficient or electric cars.
What formula can we use to calculate the Price Elasticity of Demand?
Price Elasticity of Demand = Percentage change in quantity demanded / Percentage change in price
What is the Total Revenue (in a market)?
is the amount paid by buyers and received by sellers of a good calculated as the price of the good times the quantity sold.
If the price elasticity is less than 1, then it is…?
inelastic
If the price elasticity is greater than 1, then it is…?
elastic
What does Income Elasticity of Demand measure?
how the quantity demanded changes as consumer income changes.
What formula can we use to calculate the income elasticity of demand?
Income elasticity of demand = % change in quantity demanded / % change in income
What does the cross-price elasticity of demand measure?
how the quantity demanded of one good responds to a change in the price of another.
What formula can we use to calculate the cross-price elasticity of demand?
Cross-price elasticity of demand = % change in quantity of a good / % change in price of related good
What does the Price Elasticity of Supply measure?
how much the quantity supplied responds to changes in price.
What is the formula we can use to calculate the price elasticity of supply?
Price Elasticity of Supply = % change in quantity supplied / % change in price
If we have inelastic demand and want to generate more revenue, we should push prices…
up
If we have elastic demand and want to generate more revenue, we should push prices…
down
Inferior good as a ______ coefficient while a normal good has a _____ coefficient..?
negative, positive
