Chapter 4 ECON 210

Market period

A period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly elastic supply.

Which product is most likely to be the most price elastic?

Automobiles

When the price falls and the total revenue does not change:

Demand is unit elastic

If Elasticity of demand is greater than 1:

Elastic

Total revenue falls as the price of a good is raised, if the demand for the good is:

Elastic

If Elasticity of demand is less than 1:

Inelastic

The price elasticity of demand is a measure of the:

Responsiveness of quantity demanded to a change in price

If Elasticity of demand is equal to 1:

Unit Elastic

or which product is the income elasticity of demand most likely to be negative?

Used clothing

Price elasticity of demand

a measure of the responsiveness of buyers to change in the price of a product or resource. The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price.

Long run

a period of time long enough to enable producers to change the quantities of all the resources they employ; a period when all resources and costs are variable and none are fixed.

Short run

a period of time when producers are able to change the quantities of some but not all of the resources they employ.

When demand is elastic a price decrease will:

cause an increase in total revenue

When price declines and total revenue decreases:

the demand is inelastic.

Cross Elasticity of Demand

the ratio of the percentage change in quantity demanded of one good to the percentage change of the price of another good. A positive coefficent indicates the products are substitute goods, while a negative coefficient indicates they are complementary goods. = percentage change in quantity demanded of product X / percent change in price of product Y

Price elasticity of supply

the ratio of the percentage change in quantity supplied of a product or resource to the percentage change in price; a measure of its responsiveness of buyers to a change in the price of a product or resource.

Income Elasticity of Demand

the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measure the responsiveness of consumer purchases to income changes. =percentage change in quantity demanded / percentage change in income