Elasticity
Long-run supply is the _____
most elastic
The elasticity of supply depends on (2)
- Resource substitution possibilities - Time frame for supply decision
The factors that influence the elasticity of demand
- The closeness of substitutes - The proportion of income spent on the good - The time elapsed since a price change
Momentary supply is _____ The quantity supplied immediately following a price change is constant.
-perfectly inelastic The quantity supplied immediately following a price change is constant.
Calculating Price Elasticity of Demand
=Percentage change in quantity demanded/ Percentage change in price (%⌂Q demanded/%⌂P)
The formula for calculating the income elasticity of demand is
Percentage change in quantity demanded/ Percentage change in income (%⌂Q demanded/%⌂P income)
The formula for calculating the cross elasticity is
Percentage change in quantity demanded/ Percentage change in price of substitute or complement (%⌂Q demanded/%⌂P of substitute or complement)
The elasticity of supply is calculated by using the formula:
Percentage change in quantity supplied Percentage change in price (%⌂Q supplied/%⌂P)
When the price changes, total revenue also changes. But a rise in price doesn't always increase total revenue because....
The change in total revenue due to a change in price depends on the elasticity of demand
total revenue test
a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (when all other influences on the quantity sold remain the same).
If demand is inelastic, a 1 percent price cut increases the quantity sold by less than 1 percent, and total revenues _____
decreases
If your demand is inelastic, a 1 percent price cut increases the quantity you buy by less than 1 percent and your expenditure on the item _____ If your demand is unit elastic, a 1 percent price cut increases the quantity you buy by 1 percent and your expenditure on the item _____
decreases
If your demand is unit elastic, a 1 percent price cut increases the quantity you buy by 1 percent and your expenditure on the item _____
does not change
The closer the substitutes for a good or service, the more_____(elastic/ inelastic) are the demand for the good or service.
elastic
Time Elapsed Since Price Change The more time consumers have to adjust to a price change, or the longer that a good can be stored without losing its value, the more _____ (elastic/ inelastic) is the demand for that good
elastic
Luxuries, such as exotic vacations, generally have _____ (elastic/ inelastic)
elastic demand
If a price cut increases total revenue, demand is _____ If a price cut decreases total revenue, demand is _____ If a price cut leaves total revenue unchanged, demand is ______
elastic; inelastic; unit elastic
Proportion of Income Spent on the Good The greater the proportion of income consumers spend on a good, the larger is the _____(elasticity/ in-elasticity) of demand for that good
elasticity
total revenue from the sale of good or service is equal to
equals the price of the good multiplied by the quantity sold (Pgood x Qsold)
The more time that passes after a price change, the _____ (greater/ smaller) is the_____ (elasticity/ inelasticity) of supply
greater ; elasticity
The easier it is to substitute among the resources used to produce a good or service, the_____(greater/ smaller) is its_____ (elasticity/ inelasticity) of supply
greater; elasticity
Perfectly elastic demand
horizontal demand curve
Supply is perfectly elastic if the supply curve is _____ and the elasticity of supply is _____
horizontal; infinite
perfectly inelastic demand
if the quantity demanded doesn't change when the price changes, the price elasticity of demand is zero
If demand is elastic, a 1 percent price cut increases the quantity sold by more than 1 percent, and total revenue _____
increases
If your demand is elastic, a 1 percent price cut increases the quantity you buy by more than 1 percent and your expenditure on the item _____
increases
Necessities, such as food or housing, generally have _____( elastic/ inelastic)
inelastic demand
demand can be (which 3 things) and can range from _ to _
inelastic, unit elastic, or elastic, and can range from zero to infinity
If the income elasticity of demand is less than zero (negative) the good is a(n)_____
inferior good
Supply is unit elastic if the supply curve is _____ and passes through the origin. (Note that slope is irrelevant.)
linear
cross elasticity of demand
measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement, other things remaining the same
income elasticity of demand
measures how the quantity demanded of a good responds to a change in income, other things remaining the same
elasticity of supply
measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences on selling plans remain the same
If the income elasticity of demand is greater than 1, demand is income elastic and the good is a(n) _____
normal good
If the income elasticity of demand is greater than zero but less than 1, demand is income inelastic and the good is a(n) ______
normal good
The cross elasticity of demand for: -substitute is _____ -complement is _____
positive; negative
If demand is unit elastic, a 1 percent price cut increases the quantity sold by 1 percent, and total revenue_____
remains unchanged
Short-run supply is _____ Long-run supply is the most elastic
somewhat elastic.
What is unit elastic demand
the price elasticity of demand equals 1
If the percentage change in the quantity demanded is infinitely large when the price barely changes,
the price elasticity of demand is infinite and the good has a perfectly elastic demand
If the percentage change in the quantity demanded is greater than the percentage change in price,
the price elasticity of demand is greater than 1 and the good has elastic demand
If the percentage change in the quantity demanded is smaller than the percentage change in price,
the price elasticity of demand is less than 1 and the good has inelastic demand
%⌂Q=%⌂P
unit elastic demand
price elasticity of demand
units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same
Supply is perfectly inelastic if the supply curve is _____ and the elasticity of supply is 0.
vertical and 0