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What is price elasticity of demand
•The responsiveness, or sensitivity, to a change in price
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What is the definition of price elasticity of demand?
•The ratio of the percentage change in the quantity demanded of a product to a percentage change in its price
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What is the equation of Price elasticity
Ed= % D in Q demanded / % D in price
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Price elasticity equals the...what?
- Change in quantity demanded sum of quantities/2
- divided by D
- Change in price sum of prices/2
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What is the midpoint formula:
Q2-Q1/ Q1+Q2 /// P2-P1/ P1+P2
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If we do not have percentages we can use what?
Midpoint formula
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What is elastic demand?
a condition in which % of change in quantity demand is greater than % change in price
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What is total revenue?
# total of dollars a firm earns from a sale of a good or service, = to its price x by deamnded quantity
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What happens to total revenue as price increases?
decrease
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what happens to total revenue as price decreases?
increases
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What is inelastic demand?
•The percentage change in the quantity demanded is less than the percentage change in price
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what happens to total revenue during inelastic demand as price increases?
increases
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what happens to total revenue during inelastic demand when price decreases
decrease
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What is a unitary elastic demand curve?
•The percentage change in the quantity demanded is equal to the percentage change in price
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is there a change in total revenue as price decrease or increases during unitary elastic demand?
there is no change
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What is a perfectly elasticdemand curve?
•An extreme condition in which a small percentage change in price brings about an infinite percentage change in the quantity demanded
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In perfectly elastic demand a price change causes what ?
infinite change in quantity demand
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What is a perfectly inelasticdemand curve?
•Another extreme condition in which the quantity demanded does not change as the price changes.
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In perfectly inelastic demand price change does what
zero change in quantity demanded
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If a college raises tuition, what happensto total revenue
- If demand is elastic - total revenue decreases
- If demand is inelastic - total revenue increases
- If demand is unitary elastic – total revenue is constant
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If price increases and the revenue gained is less than the revenue lost, the demand curve is price elastic > 1
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If total revenue does not change when price increases, the demand curve is unitary elastic =1
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If price increases and the revenue gained is greater than the revenue lost, the demand curve is price inelastic < 1
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Does price elasticity of demandvary along a demand curve?
•Yes. The price elasticity of demand coefficient of demand applies only to a specific range of prices along the demand curve.
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What factors influence demand elasticity?
•Availability of substitutes•Share of budget on the product•Adjustment to a price change over time
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What do substitutes have to dowith a price change?
•The more substitutes a product has, the more sensitive consumers are to a price change, and the more elastic the demand curve
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What conclusion can we makeconcerning substitutes?
•The price elasticity of demand is directly related to the availability of good substitutes for a product
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What does the share of one’sbudget have to do with a price change?
•The larger the purchase is to one’s budget, the more sensitive consumers are to a price change, and the more elastic the demand curve
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What does time have to do withsensitivity?
•The longer consumers have to adjust, the more sensitive they are to a price change, and the more elastic the demand curve
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What are other elasticitymeasures?
•Income elasticity of demand•Cross-elasticity of demand
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What is income elasticity ofdemand?
•The ratio of the percentage change in the quantity demanded of a good to a given percentage change in income
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Income Elasticity of Demand formula??
% change in Q demanded / % change in income
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What is cross-elasticity ofdemand?
•The ratio of the percentage change in quantity demanded of a good to a given percentage change in price of another good
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Cross-elasticity of Demand formula?
% of change in Q demanded of good A/ % change in price of good B
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Price Elasticity of Supply
% in change Q supplied / % change in price
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Who pays the tax levied onsellers of goods such as gasoline, cigarettes, and alcoholic beverages?
•It all depends; the corporation pays all, some, or very little of the tax
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What decides who pays what partof the tax increase?
•The more elastic the demand, the more the corporation pays; the less elastic the demand, the more the consumer pays
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A perfectly elastic demand curve has an elasticity coefficient?
Infinity
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A elastic demand curve has an elasticity coefficient?
greater than 1
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A inelastic demand curve has an elasticity coefficient?
less than 1
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A unitary elastic demand curve has an elasticity coefficient?
=1
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A perfectly inelastic demand curve has an elasticity coefficient?
= 0
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if promoters raise their prices from $10 to $40 per ticket, then their total revenue will
increases
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The longer the time period under study,
the more elastic is the price elasticity of demand
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The cross elasticity of demand for substitute products must:
be greater than zer0
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If the demand curve is unit elastic, this implies that:
the percentage change in the quantity demanded = the percentage change in product price
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suppose promoters charge a price of $30 per ticket. How much total revenue will their sales generate 10 tickets
300,000
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If a good has a price elasticity of demand coefficient less than one, then:
inelastic demand
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As the economy recovers from a recession, we should expect that demand for:
inferior goods will rise and demand for non-inferior goods will fall
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Governments can use price elasticity of demand to estimate how changes in excise tax rates will affect:
tax revenues
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if the area OABC equals the area ODEF, the demand curve is
unitary elastic
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The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as:
normal good
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The price elasticity of demand measures consumer responsiveness to a price change.
true
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To determine whether two goods are substitutes or complements, an economist would estimate the:
cross-elasticity of demand
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The demand for a product is likely to be more elastic:
when more good substitutes for the product are available.
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It is Valentine's Day and Jason is desperately looking all over town for a dozen roses to give to Judy. Most likely, Jason's price elasticity of demand is:
less than 1
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The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths' ____ is negative.
income elasticity for macaroni
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If the demand curve for a good is elastic, consumers will spend more on that good when its price increases.
false
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Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is:
elastic and TR will decrease
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Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is:
inelastic
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