Econ Exam 3 - Price Elasticity of Demand
Goods without close substitutes tend to have
Less Elastic Demands
If the cross price elasticity of demand between two goods is positive
They are substitutes because the price of one good and the demand for the other move in the same direction
Ed=1
Unit Elastic
The extreme case is perfectly inelastic supply
Where Es=0
The extreme case is perfectly elastic supply
Where Es=Infinity
The more time that people have to adapt to a new price change,
the greater the elasticity of demand
If the income elasticity is negative, then
The good in question is an inferior good, because the change in income and the change in quantity demanded move in opposite directions
If demand is relatively less elastic than supply in the relevant tax region,
The largest portion of the tax is paid by the consumer
However, if the demand is relatively more elastic than supply in the relevant tax region
The largest portion of the tax is paid by the producer
The smaller the proportion of income spent on a good
The lower its elasticity of demand
The income elasticity of demand is defined as
The percentage change in quantity demanded at a given price/the percentage change in income
If the percentage change in quantity demanded is GREATER than the percentage change in price that caused it, then
The quantity demanded is elastic
If the percentage change in quantity demanded is LESS than the percentage change in price that caused it, then
The quantity demanded is inelastic
If the income elasticity is positive
Then the good in question is a normal good, because the change in income and the change in quantity demanded move in the same direction
If the amount spent on a good relative to income is small (such as salt),
Then the impact of a change in its price on one's budget will also be small
When the price falls on the upper half of the demand curve,
There is a negative relationship between price and total revenue
When price falls on the upper half of the demand curve,
There is a positive relationship between price and total revenue, so demand is relatively price inelastic
When demand is relatively price inelastic
Total revenues will be lower at lower prices
Ed > 1
Elastic
The flatter the demand curve, the more
Elastic is demand
Goods with a supply elasticity that is greater than one
Are relatively elastic with supply
The price elasticity of supply is defined
At the percentage change in the quantity supplied divided by the percentage change in price
The cross price elasticity of demand measures
Both the direction and magnitude of the impact that a price change for one good will have on the quantity of another good demanded at a given price
If the cross price elasticity of demand between two goods is negative, they are
Complements, because the price of one good and the demand for the other move in opposite directions
If the quantity demanded is very responsive to even a small change in price, we call it
Elastic
The relative elasticity of supply and demand determines
The distribution of the tax burden for a good
The income elasticity of demand coefficient not only expresses the degree of the connection between two variables, but also
Indicates whether the good in question is normal or inferior
Ed < 1
Inelastic
If even a huge change in price results in only a small change in quantity demanded, then demand is said to be
Inelastic
The law of demand establishes that quantity demanded changes
Inversely with changes in price
Consumers will respond __________ to price changes for these goods (small ticket items, like salt)than for similar percentage changes in large-ticket items (car).
Less
For many goods, especially non-durable goods, the short-run demand curve is generally (more/less) elastic than the long-run demand curve
Less
The tax burden falls primarily on the side of the
Market that is less elastic, which has nothing to do with who actually pays the tax at the time of purchase
Goods with close substitutes tend to have
More Elastic Demands
The price elasticity of demand is defined as the
Percentage change in Quantity Demanded/Percentage change in price
The cross price elasticity of demand is defined as the
Percentage change in quantity demanded of one good at a given price/the percentage change in price of another good
According to the law of supply, there is a __________________ relationship between price and quantity supplied, ceteris paribus
Positive
Total revenue is the
Price of a good x Quantity of the good sold
Income elasticity of demand is a measure of the
Relationship between a relative change in income and the consequent relative change in quantity demanded, ceteris paribus.
The price elasticity of demand measures the
Responsiveness of quantity demanded to changes in price
Goods with a supply elasticity that is less than 1
are relatively inelastic in supply
The price elasticity of supply measures
how responsive the quantity sellers are willing and able to sell is to changes in the price
If the price rises and the quantity demanded falls
then total revenue rises because the percentage decrease in the quantity demanded is less than the percentage increase in price
If the demand curve is inelastic
total revenue will vary directly with a price change