Econ 6 – Flashcards
Unlock all answers in this set
Unlock answersquestion
Demand Elasticity
answer
the sensitivity of customers to price changes. When demand is elastic there is a large change in quantity demand even when small change in price. When demand is inelastic there is a small change in quantity demanded when there is a large change in price.
question
A perfectly elastic demand curve will be shown by a line
answer
parallel to the horizontal axi
question
a perfectly inelastic demand curve will be shown by a line
answer
parallel to the horizontal axis
question
Elasticity: The percentage change in quantity demanded is ____ than the percentage change in price. If price increases total revenue will:
If price decreases total revenue will:
FOR ELASTIC
answer
Elastic Ed>1 (larger) Decrease Increase
question
Elasticity: The percentage change in quantity demanded is ____ than the percentage change in price. If price increases total revenue will: If price decreases total revenue will:
INELASTIC
answer
Elasticity: The percentage change in quantity demanded is ____ than the percentage change in price. If price increases total revenue will: If price decreases total revenue will:
question
UNTI ELASTIC The percentage change in quantity demanded is ____ than the percentage change in price. If price increases total revenue will: If price decreases total revenue will:
answer
Ed=1 (same) Not change Not change
question
Explain why using the slope of a demand curve alone is not sufficient to measure elasticity and how the elasticity changes as you move along a linear demand curve.
answer
Elasticity changes along a demand curve. Demands tend to be more elastic in upper left portion of demand and more inelastic in the lower right portion. The slope of a curve shows absolute changes and elasticity shows relative or percentage changes
question
List the major determinants of price elasticity of demand and how each influences the elasticity of demand.
answer
Substitutes- the more options in the market the more elastic demand will be. Fewer substitutes will make demand inelastic.
Proportion of Income- Higher proportion of income makes demand more elastic. Lower is inelastic.
Luxuries vrs necessities- Luxuries are more elastic while the demand for necessities is inelastic.
Time- More time available for consumer makes the demand more elastic. Less time= inelastic.
question
Substitutes
answer
the more options in the market the more elastic demand will be. Fewer substitutes will make demand inelastic.
question
Proportion of Income
answer
Higher proportion of income makes demand more elastic. Lower is inelastic.
question
Luxuries vrs necessities-
answer
Luxuries are more elastic while the demand for necessities is inelastic.
question
Time
answer
More time available for consumer makes the demand more elastic. Less time= inelastic
question
price elasticity of supply
answer
measures how sensitive firms are to price changes. When supply is elastic small changes in price will cause firms to greatly change quantity. When supply is inelastic those price changes will not change quantity supplied.
question
Price elasticity of supply depends on
answer
how quickly producers can shift resources between different uses. The more quickly the greater the supply elasticity.
question
Time also effects supply elasticity
answer
the more time the more elastic the supply.
question
Immediate market period
answer
no time to adjust output due to a price change. Inelastic
question
Short run-
answer
there is enough time to adjust output by increasing or increasing the variable inputs but not the fixed. Somewhat elastic
question
Long run
answer
enough time to adjust output by increasing or decreasing all inputs. Most elastic.
question
Cross elasticity of demand
answer
measures of sensitive consumer purchases of one product are to a change in the price of another product. Allows us to quantify and more fully understand substitute and complimentary goods.
question
Cross elasticity of demand formula
answer
(Percent change in quantity demanded of x)/(percent change in price of y)
question
Substitute goods
answer
will have a positive cross elasticity of demand since the change in the price of one good and the change in the demand for it's substitute move in the same direction. Positive.
question
Compliment goods
answer
have negative cross elasticity of demand. Change in the price of one good and demand for its complement move in opposite directions. Negative.
question
Independent goods
answer
have 0
question
Income elasticity
answer
measures the degree to which consumers respond to a change in their incomes by purchasing more or less of a particular good.
question
Income elasticity formula
answer
Percent change of quantity demanded/percent change in income
question
Normal goods will have
answer
positive income elasticity because more of them are demanded as income rises.
question
Inferior goods
answer
have negative income elasticity.
question
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?
Price falls and demand is inelastic
answer
Decrease
question
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?
Price rises and demand is elastic:
answer
Decrease
question
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?
Price rises and demand is inelastic:
answer
Increase
question
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?
Price falls and demand is elastic
answer
Increase
question
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?
Price falls and demand is of unit elasticity
answer
Remain unchanged
question
If the demand for farm products is price inelastic, a good harvest will cause farm revenues to:
answer
decrease.
question
The larger the positive cross elasticity coefficient of demand between products X and Y, the:
answer
greater their substitutability.
