CH. 3 Elasticity and consumer choice

The Formula for price elasticity of supply is ...

% change in Quantity Supplied / % change in price

Elasticity Demand

% change in quantity demanded _______________________________________________ % change in Price

Simple formula for the price Elasticity of Supply is....

((New Q supplied - Old Q supplied ) / Old Q supplied )) ____________________________________________________________ ((New Price - Old Price)/(Old Price))

The Simple Formula for Price Elasticity of demand is

((Old Q Demanded-New Q Demanded)/(New Q Demanded)) / ((Old Price-New Price)/(Old Price))

When there is productive Effeciency

***Output is produced using the fewest resources possible to produce a good or a service. ***Output is produced at the lowest possible total cost per unit of production.

Which of the following is True?

- Price elasticity of demand and slope are not always the same along a linear demand curve. - Price elasticity of demand and slope are not always the same along a non-linear demand curve.

To Calculate profit, which three pieces of information must be identified?

1.Price, 2.Quantity and 3.Average Total Cost

Income Elasticity of Demand

A measure of how responsive Demand is to a change in Consumer Income; Calculated as the percentage change in the quantity of a good or service demanded divided by the percentage change in Income.

Calculate the price of Elasticity of Demand

A measure of how responsive quantity demanded is to a change in price; Calculated as the percentage change in quantity demanded divided by the percentage change in price.

which of the following statements are true A. relationship exists between slope and elasticity, but they are not the same thing. B. Elasticity is the inverse of slope C. The elasticity calculation uses percentage changes in the price and quantity D.Slope uses changes in price and quantity E. Slope is the inverse of elasticity

A, C, D

Which of the following is True of Informantion?

A.******Acquiring information is Costly****** B. Consumers always make decisions based on perfect information? C. Consumers do not consider imperfect information as it is not easily available D. Acquiring information is easy.

The difference between total utility and marginal utility is that the marginal utility is the _______________?

Added satisfaction of consuming another unit of the good, whereas total utility is the cumulative marginal utilities of all units consumed.

Marginal Utility =

Additional Satisfaction

For each pair of goods determine which one would have a relatively more elastic demand curve (Determine elasticity according to luxury and necessary goods). Airline travel or gasoline

Airline travel

For each pair of goods, determine which one would have a relatively more inelastic demand curve?

Brand name shoes or *****all shoes***** Ice cream or *****all frozen treats *****all chips or potato chips

The more Broadly we define a market, the fewer reasonable substitutes will be available and the relatively more inelastic the demand will be. For example, the demand for gasoline as a whole is relatively inelastic: On the other hand, the demand for gasoline at any one specific gas station is relatively elastic.

Broad Mark Definition = Inelastic Demand Narrow Market = Elastic Demand

If a market is----- for example, "Water", then there are fewer substitutes.

Broadly Defined

Utility Maximization Rule States:

Consumers decide to allocate their money incomes so that the last dollar spent on each product purchased yields the same amount of extra marginal utility. Does not fit the criteria - Homogeneous - meaning different, not the same

Which of the following uses negative and positive values to assess whether goods are substitutes or compliments?

Cross-price Elasticity

For each pair of goods, determine which one would have a relatively more elastic demand curve? Toothpaste or Cruise-ship vacations

Cruise-ship Vacations

The Difference between the economic Surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the _____________?

Deadweight Loss

A price elasticity of demand .-0.50 means that if the price increases by 1%, the quantity demanded will __________ by _________.

Decrease by .50%

Utility Maximization helps explain the substitution effect that is noted when explaining the law of ________________.

Demand

Normal profit is also known as zero economic ____________profit

Economic

If the absolute value of price elasticity of demand equals 4.55, the demand is ?

Elastic

Absolute Value of -3 = 3

Elastic because 3 is greater than 1

Economists use the concept of__________ to examine a wide variety of relationships and measure the degree of responsiveness.

Elasticity

Price __________ of demand is a measure of how responsive the quantity demanded is to a change in price.

Elasticity

Consumers maximize utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal according to the

Equal Marginal Principle

For each pair of goods, determine which one would have a relatively more Elastic Demand Curve.

Gasoline Sales over this weekend or ****** Gasoline Sales over this weekend. Snow Shovel Sales during a Storm or *******Snow Shovel Sales over the Winter. Bicycle Sales in the Spring or *******Bicycle Sales over the year.

Economists find Elasticity useful because it

Has no units attached to it and can be useful to compare elasticities across different goods and countries.

Time periods associated with a set of supply curves include

Immediate period, long run & short run

The price Elasticity of Supply of 0.75 means that if the price increases by 10% the quantity supplied will...

Increase by 7.50

The marginal utility associated with one sub-sandwich is 5 utils. The marginal utility of a second sandwich is 3 utils. In this case total utility ____________(increases/decreases) with the consumption of the second sandwich.

Increases

Diminishing Marginal Utility means total utility is ......________________

Increasing at a decreasing rate, as long as marginal utility is positive.

Absolute Value of -0.2

Inelastic when number is less than 1

A Price Elasticity of demand that is calculated as -0.61 would be considered.....

Inelastic, because its absolute value is less than 1

A good for which an inverse relationship exists between the demand for the good and income is an _______good.

Inferior

For __________goods, an increase in Income decreases demand, and a decrease income increases demand.

Inferior

Not every decision that consumers make turns out to be perfect, because consumers can never have all the _____________ they might need to make the perfect decision.

Information

When we discuss consumer behavior, we assume that consumers do their best with the ___________ they have available.

Information

The ___________range of the linear demand curve is relatively less elastic.

Lower

The Law of Diminishing Marginal Utility states that the ____________utility associated with the consumption of a good or service becomes ______(less/more) with each additional unit that is consumed in a given time period.

Marginal (Total / Marginal); Less

The Additional Satisfaction or happiness received from the consumption of an additional unit of a good or service is the _______of the good or servicel.

Marginal Utility

The Law of Diminishing Utility states that the =

Marginal utility associated with the consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period.

_______ Definition influences the number of substitutes

Market

If a Market is _______, for example, "Brand A bottled water" then there are more substitutes.

Narrowly Defined

Cross Price Elasticity of Demand uses ....

Negative and Positive Values to determine if Goods are Substitutes or Compliments

For __________ goods, an increase in income increases demand, and a decrease in income decreases demand.

Normal

For each pair of goods determine which one would have a relatively more elastic demand curve (Determine elasticity according to luxury and necessary goods). Opera Tickets or shoes

Opera Tickets

Price Elasticity of supply is a __________number because of the law of supply

Positive

Consumers seek to maximize satisfaction based on

Preferences, budget, and the prices of the goods and services purchased.

For each pair of goods, determine which one would have a relatively more elastic demand curve? Basic Cable Television or premium cable channels

Premium Cable Channels

__________ Elasticity of Supply is a measure of how responsive the quantity supplied is to a change in price

Price

Businesses are interested in the __________because it allows them to estimate the potential changes in the quantity demanded associated with changes in the prices of their products.

Price Elasticity of Demand

Elasticity vs slope: slope uses changes in

Price and quantity

Why do we care about the price elasticity of demand?

Producers of goods and services need to know what will happen to the quantity demanded when the price changes.

For each pair of goods, determine which one would have a relatively more elastic demand curve? Electricity or restaurant meals

Restaurant Meals

Utility =

Satisfaction or Happiness received from goods or services.

The _________ Run is the time period in which at least one input of production is Fixed but other inputs can be changed.

Short

Total Utility is equal to the _________________?

Sum of Marginal Utilities

To Calculate the Marginal Utilities per dollar, divide each marginal utility value by the price of the product.

Tacos are 3 dollars each - What is the Marginal Utility if you have MU/P 15 Tacos=5 12 " = 4 9 " = 3 6 " 2

Dave bought a pizza, which was divided into five slices. After eating the third slice, he couldn't eat the fourth slice. Applying the Law of Diminishing marginal utility to this scenario, which of the following statements is true?

The marginal utility derived from the fourth slice is less than the marginal utility derived from the third slive.

Absolute Value of -1 = 1

Unit Elastic

Utils =

Unit of Measurement

The ________range of the linear demand curve is relatively more elastic.

Upper

In Economics, the satisfaction or happiness received from the consumption of goods and services is known as

Utility

____________Maximization assumes that consumers attempt to get the maximum total utility possible out of their limited incomes.

Utility

A clear benefit to monopolistic competition for consumers is product

Variety

Demand is perfectly Inelastic when the value of the price Elasticity of Demand is

Zero

In economics, elasticity

applies to any two variables

The more ________ a market is defined, the fewer reasonable substitutes will be available.

broadly

The price elasticity of demand as you move along the demand curve.

changes

the slope of a liner curve is ____________along the curve

constant

A price elasticity of demand of -1.25 means that if price increases by 1%, quantity demanded will ______

decrease by 1.25%

In a Monopolistically competitive market, each firm produces a differentiated and unique product, so firms face ______________sloping demand curves.

downward

when consumers have more time to adjust, demand becomes relatively more ________

elastic

_______ is a measure of how responsive one variable is to a change in another variable

elasticity

The _________the change in price, the less reliable the elasticity estimate is going to be.

greater

Economists find elasticity useful because it:

has no units attached to it and can be used to compare elasticities across different goods and countries

If |Ed| = 0.25, the demand is ________________

inelastic

elasticity can be used to compare responsiveness across different good and across countries because:

it has not units attached to it

For each pair of goods determine which one would have a relatively more elastic demand curve (Determine elasticity according to luxury and necessary goods). shampoo or manicures

manicures

The price Elasticity of demand is a _________number because of the Law of Demand.

negative

Cross-Price Elasticity of demand uses

negative and positive values to determine if goods are substitutes or compliments

Elasticity vs Slope: Elasticity calculation uses

percentage changes in price and quantity

___________ elasticity of demand is a measure of how responsive the quantity demanded is to a change in price

price

Cross price elasticity of demand is a measure of the effect of a change in the

price of one product on the quantity demanded of another

utility maximization helps explain the _______________effect that is noted when explaining the law of demand.

substitution

The slope of a linear demand curve

the change in price divided by the change in quantity demanded

A slope of a linear demand curve is ....

the change in price divided by the change in quantity demanded.

Even though the price per ounce of popcorn is much lower for the largest size at a movie theater, not everyone buys the large bucket of popcorn because....

the extra utility from the extra popcorn is less than the extra cost to the buyer.

There is an inverse relationship between price and quantity demanded. If price rises (falls), quantity demanded decreases (increases), this is called_______

the law of demand

what is the formula for elasticity

the percentage in quantity divided by the percentage change in price Elasticity= %Q/%P

Businesses can estimate the potential changes in the quantity demanded associated with changes in the prices of their products by using

the price elasticity of demand

Price elasticity of demand is a measure of how responsive

the quantity demanded is to a change in price

with cross-price elasticity of demand

the sign helps determine whether the goods or services are substitutes or complements