AP econ elasticity

The cross-price elasticity of demand between goods J and K is -3. A 20 percent decrease in the price of good K will result in a

60 percent increase in the quantity demanded of good J

Normal good

Income goes up, quantity demanded goes up Income goes down, quantity demanded goes down

If price goes up and total revenue goes up And price goes down and total revenue goes down

Inelastic

Inelastic

Less responsive to price (usually goods that are needs) so there is a lower percentage change in Qd than the percentage change in P

Elastic

More responsive to price change (usually goods that are wants) so there is a greater percentage change in Qd than the percentage change in P

Three Determinates of Elasticity

-number substitutes -proportion of income -time

According to the diagram what is the dollar amount of the unit tax

1.00

Calculate the elasticity of demand coefficient

2 so elastic

Unitary

A proportionate change in quantity demanded due to price (ex: price drops by 10% the Qd demand increases by 10%)

If a 10 percent increase in the price of good X results in a 20 percent decrease in the quantity of good Y demanded, which if the following is true?

C) good X and Y are complementary goods, and the cross price elasticity is -2

proportion of income

Cheaper items are less responsive to price change Ex) penny candy (inelastic); expensive items like homes are more responsive (elastic)

Inferior goods

If income goes up, quantity demanded goes down If income goes down, quantity demanded goes up

Number of substitutes

If there are large numbers of substitutes consumers can simply buy these goods (elastic) If there are little or no substitutes there is an (inelastic) demand

Assume the price of apples increases from $20 to $25 and the quantity demanded falls from 10 tons to 5 tons

Elastic

If price goes up and total revenue goes down If price goes down and total revenue goes up

Elastic

Total Revenue test

Only works for elasticity of Demand

Compliments

Price of good A goes up so demand for good B goes down

Substitutes

Price of good A goes up then demand for B goes up

Cross Price Elasticity

The effect of a price change on the quantity demanded of a different good Substitutes (positive) compliments (negative) Inferior good (less than zero) normal good (more than zero)

time

The less time we have to buy a good the good the less responsive it is to price changes (inelastic)

The cross price elasticity of demand between good X and good Z measures the percentage change in the quantity demanded of good X in response to a percentage change in

The price of good Z

After the government imposed a $0.20 per gallon tax on gasoline, the price of a gallon of gasoline increased from $1.00 to $1.15. Which of the following statements is true?

c. Consumers bear most, but not all, of the tax burden

Perfectly Elastic Demand

horizontal demand curve (think E)

Perfectly Inelastic Demand

vertical demand curve (think I)

cross price elasticity

when the price of good A changes and has an affect on good B