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